PSU Banks Outperform Private Peers on Margins, Cushioning RBI Rate Cut Impact

• PSU banks protected Net Interest Margins (NIMs) better than private banks during RBI's 2025 rate cut cycle.
• Lower funding costs and stable deposit franchises (higher CASA) helped PSBs cushion the impact of rate cuts.
• Private banks saw sharper NIM compression (8-116 bps) compared to PSBs (8-73 bps) in Q2FY26.
• RBI's 125 bps rate cut in 2025 put pressure on lending yields; private banks had faster asset-side transmission.
• Outlook for India's banking sector remains stable for FY2026, but NIM improvement might be slightly delayed.

Why It Matters: PSU banks outperformed private peers in protecting NIMs during RBI rate cuts, thanks to funding advantages.