By Kshipra Petkar
Muted loan growth and pressure on net interest margins (NIMs) are expected to weigh on the financial results of banks for the April-June quarter, analysts said in their pre-earning reports. The earnings season will kick off with Axis Bank announcing its results on Jul 17, followed by HDFC Bank and ICICI Bank on Jul 19.
The credit growth of the banking industry slowed down to 9.8% as on June 13, this was mainly because banks were cautious in lending to unsecured loans, reports said. ICICI Securities expects healthy credit growth from IDFC FIRST Bank, Karur Vysya Bank, DCB Bank, City Union Bank and Kotak Mahindra Bank.
Net interest margins will be under pressure as a result of the rate cut by the Reserve Bank of India. “Banking sector NIMs are thus expected to remain under pressure in 1HFY26 (April-September), with some variation across banks depending upon the quantum of repo-linked loans and the transmission timelines,” Motilal Oswal said in its report. However, a phased reduction in deposit rates and a 100 basis points cash reserve ratio cut, effective from September, will enhance liquidity and bring some relief to margins.
ICICI Securities said that despite adequate liquidity and savings rate cuts, private banks under their coverage are likely to furnish subdued net interest income growth of around 4% on year.
For public sector banks, profit growth is expected to moderate sharply to 4.8% YoY (down 11.7% QoQ), amid a decline in NIMs, normalized operating expenditure, and higher provisions sequentially due to the benefits of the one-time reversal in provisions on security receipts reported in Jan-Mar. All banks are expected to see an improvement in their treasury gains due to declining g-sec yields.
Banks continue to struggle for garnering deposits, and brokerages expect growth in deposits to be muted for the quarter ended June. “We expect muted deposit growth in 1QFY26, as the seasonal flow of 4Q unwinds. Deposit costs should begin to ease gradually as liability repricing happens,” Motilal Oswal said in its report.
On the asset quality front, public sector banks are expected to be better placed as compared to their private sector peers due to controlled slippages and higher provisions. Even though the stress in the microfinance sector continues, it is seen moderating across banks, brokerages said.
Due to seasonality there could be some uptick in slippages, reports said. “We expect a seasonal uptick in agriculture slippages for large private banks such as Axis, HDFCB (HDFC Bank) and select PSU banks,” ICICI Securities said in its report.
It also said that unlike Jan-Mar, which was seasonally strong and had a few large resolutions such as KSK Mahanadi, JPA, among others, Apr-Jun is likely to be lean and most of the recovery should be granular.