BFSI 2025: PSU Banks Shine, MFIs Struggle, Gold Financiers Glitter Amid Divergence

• Public sector banks emerged as top performers in 2025, driven by improved asset quality and consistent loan growth, with Canara Bank, Bank of India, and State Bank of India leading gains.
• Microfinance institutions (MFIs) faced significant stress, with muted growth expected in FY26 following a sharp contraction in FY25, particularly in unsecured and small-ticket lending.
• Gold financiers benefited from a rally in gold prices, while large, well-capitalised NBFCs like L&T Finance, Bajaj Finance, and Shriram Finance rewarded investors with strong returns.
• Insurance stocks showed mixed results; GST exemption boosted demand, but the loss of input tax credits impacted profitability and delayed re-rating, despite companies adjusting strategies.
• Analysts maintain a constructive outlook for the BFSI sector, forecasting stable asset quality, easing funding costs, and improving profitability for banks and NBFCs in FY26 and beyond.

Why It Matters: India's BFSI sector in 2025 saw PSU banks and gold financiers thrive, while MFIs struggled, highlighting market divergence.