New Delhi, Dec. 27 – According to a Saturday report from Elara Capital, the banking sector is poised for a pick‑up in systemic loan growth. The firm projects that the third quarter (Q3) of FY26 will see clearer earnings and a lift in net interest margins (NIMs).
“The quarter is expected to show lower slippages in unsecured and microfinance institutional loans, while steady recovery trends should help keep credit costs in check,” the research note said. It warned, however, that deposit inflows will remain sluggish and that the incremental credit‑deposit ratios are running very high.
“Even with a better Q3 outlook, we expect certain pressure points on deposits and anticipate NIM revisions for FY27, which could lead to earnings revision,” the brokerage added.
Bank‑specific outlook
While public sector banks are likely to post a steady performance, Elara singled out ICICI Bank, Kotak Mahindra Bank and State Bank of India for strong displays among the larger institutions. For mid‑sized players, the note highlighted Karur Vysya Bank and AU Small Finance Bank as attractive options.
“While we expect earnings to be resilient for most frontline private banks, we see softer earnings for a few private and mid‑sized banks,” the firm noted.
Asset quality and recovery
Most banks should maintain a stable asset‑quality profile, though some seasonal uptick in agricultural loan slippages is expected. The analysts see Q3 recovery trends as a cushion against rising credit costs.
The firm projects a stronger half‑year in FY26 but cautions that FY27 earnings forecasts may require adjustment, particularly due to the tightening of credit‑deposit ratios and the looming impact on NIMs.
Risk‑reward picture
The overall risk‑reward balance still favors frontline private banks, which show robust earnings resilience and reasonable valuation multiples.
Other commentary
HSBC Mutual Fund, in a recent note, remains overweight on banks and non‑bank financial companies (NBFCs). It expects banks’ net interest margins to widen in FY27, while private banks’ asset quality should recover and drive mid‑teens earnings growth after a relatively flat FY26.
NBFCs are projected to deliver strong earnings growth, buoyed by resilient credit demand and improving margins as interest rates decline.
— IANS
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