The Indian banking sector is expected to report a steady and resilient performance in Q4FY26 (Jan-Mar), supported by healthy credit demand, stable asset quality, and improving operating efficiencies. However, due to persistent macroeconomic uncertainties, brokerages’ pre-earnings reports suggest the quarter will likely see limited upside from margins and treasury income.
Systemic credit growth remains robust at around 13.5–13.8% year-on-year, driven by a consumption-led recovery and sustained retail demand. In contrast, deposit growth continues to lag at around 10.8–11.5%, leading to an elevated credit-deposit (CD) ratio of nearly 83%.
Liquidity Tightrope
“We expect CD ratios across the banking system to increase, with PSU banks likely to see greater benefit. Additionally, residual benefits from the CRR cut have supported growth in FY26E. Overall, we expect systemic credit growth to sustain at around 13.5% YoY in FY27E,” Motilal Oswal said in its report. It expects a deposit growth of 11.5% for the next financial year.
On the margin front, net interest margins (NIMs) are expected to remain broadly stable, with a slight upward bias of around 5 basis points sequentially, as per YES Securities. The brokerage highlights that deposit repricing has begun to ease the cost of funds, even as most of the repo rate transmission to loan yields has already played out. In line with Motilal Oswal’s view, large private sector lenders such as HDFC Bank and ICICI Bank are likely to report stable margins, while mid-sized and small finance banks could see modest expansion.
Loan growth is expected to remain healthy but increasingly divergent, according to YES Securities, with stronger momentum in select mid-sized banks and relatively moderate growth among larger lenders. Meanwhile, brokerages indicated that operating expenses are likely to grow slower than business volumes, supporting operating leverage and profitability. Treasury performance in the reporting quarter is expected to be muted, due to rising bond yields limiting mark-to-market gains.
Asset quality trends are expected to remain broadly stable in Q4FY26, with fresh slippages largely flat sequentially across most lenders, according to brokerage estimates.
Monitoring the Geopolitical Spillover
“Some incipient stress has been observed in export-oriented MSMEs, while the impact of the US-Israel-Iran conflict remains a monitorable beyond Q4,” YES Securities said. Stress in unsecured retail portfolios such as personal loans, credit cards and microfinance has begun to moderate, though lenders are monitoring MSME, commercial vehicle and affordable housing segments for any spillover impact.
Provisioning trends are expected to vary across banks depending on prior quarter one-offs and expected credit loss assumptions, though overall credit costs are seen largely stable sequentially. Public sector banks are unlikely to see any material asset quality deterioration, with recoveries from written-off accounts expected to remain steady, Motilal Oswal said.