Worst is still not behind for the Indian banking sector; as bad loans continue to play spoilsport. And as stated by State Bank of India's (SBI) management, the peak of non-performing loan cycle is yet to come.

The Indian public sector banks are plagued by the challenges emerging from the infrastructure and power sectors. And this is evident in their September quarterly performance. While banking behemoth SBI witnessed a dramatic earnings fall, first of its kind in two years, Punjab National Bank (PNB), the country's third largest bank witnessed a steep 50% decline in profits. Therefore, the stress on Indian banks' books continues to persist. And the red flags have been raised by the SBI's new Chairman too. Ms Bhattacharya admitted to have faced persistent stress, especially from the corporate loan segment.

Indian macro environment still remains challenging. Inflation continues to raise its ugly head. Therefore, the likelihood of interest rate hikes going ahead cannot be ruled out. Not to mention that the ability of banks to pass on the burden of higher costs to the borrowers stands limited. In such a scenario, the pressures on margins tend to intensify. Additionally, operating efficiencies of many lenders have also taken a toll, thanks to the wage hike provisions. Furthermore, many public sector lenders have sought government help with respect to strengthening their capital base to prepare for the new BASEL III norms. All-in-all, we can say that profitability of Indian banks remains vulnerable.