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Banks (Finance)

Banking Sector Expected to See Weak Quarter in Q1 Earnings Season

Strategic Insights

— 1 min read

The Indian banking sector is expected to witness a decline in profits and margins during the Q1 earnings season, according to market research firms JM Financial and InCred Equities. The credit growth for the sector has slowed down, with industrial credit growth remaining significantly lower than previous years' growth trends. The private sector banks are choosing to protect their margins over credit growth, resulting in a moderation in industrial/corporate credit. This is expected to impact the loan books of banks, with the banking sector's loan book growth expected to be 10.8 percent on a YoY basis in Q1FY26, down from 12.6 percent in Q4FY25.

Key Takeaways:

  • The banking sector's profit and margin decline is expected to continue in Q1FY26, with Net Interest Income (NII) growth expected to be just 2 percent YoY.
  • Credit growth for the sector stood at 9.6 percent by June 13, with industrial credit growth at 4.8 percent YoY in May.
  • Private sector banks are choosing to protect their margins over credit growth, resulting in moderation in industrial/corporate credit.
  • The banking sector's loan book is expected to grow at 10.8 percent on a YoY basis in Q1FY26.
  • Net Interest Margins (NIMs) are expected to squeeze by 10-20 basis points in Q1FY26 against Q1FY25.
  • Large private banks like ICICI Bank and Axis Bank are in a better position to face credit cost challenges due to better buffers in their balance sheets.
  • JM Financial expects credit cost in the unsecured segment to remain high in Q1, while InCred Equities expects a reduced stress in the unsecured segment.

Statistics:

  • Credit growth for the banking sector stood at 9.6 percent by June 13.
  • Industrial credit growth was at 4.8 percent YoY in May.
  • In May last year, the industrial loan book saw an 8.9 percent YoY growth.
  • In Q1FY26, the banking sector's loan book is expected to grow at 10.8 percent on a YoY basis.
  • Net Interest Income (NII) growth is expected to be just 2 percent YoY.
  • Net Interest Margins (NIMs) are expected to squeeze by 10-20 basis points in Q1FY26.

Sources:

  • JM Financial report
  • InCred Equities report
  • Reserve Bank of India
  • Contify.com
  • IE Online Media Services Pvt. Ltd.

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