Private bank stocks have emerged as the top performers in the banking sector during FY27, significantly outperforming both public sector banks and the broader equity market. According to ACE Equity data, the Nifty Private Bank Index has gained nearly 17 per cent so far this fiscal, surpassing the Nifty 50’s rise of around 8.4 per cent, the Nifty PSU Bank Index’s 7.5 per cent gain, and the Nifty Bank Index’s 15.6 per cent increase.
Market analysts attribute this strong performance to stable asset quality, improving business prospects, treasury gains, and supportive measures introduced by the Reserve Bank of India. These include concessional swap facilities for Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits and external commercial borrowings (ECBs), which are expected to ease funding pressures across the banking system.
Analysts at Kotak Institutional Equities remain optimistic about the outlook for leading private banks. They believe that pressure on net interest margins (NIMs) is likely to moderate as competition for deposits gradually eases. In contrast, public sector banks, which previously benefited from surplus deposits, are increasingly relying on higher-cost term deposits to support credit growth, potentially reducing their funding advantage.
The brokerage also expects strong mobilisation of FCNR(B) deposits to lower deposit costs across the banking sector. However, private banks are expected to benefit more due to their stronger deposit franchises and diversified funding mix, positioning them for sustained growth and improved profitability in the coming quarters.