System loan growth is on the rise, with expectations for better loan growth and improved net interest margins in Q3 FY26, as per a report by Elara Capital. The report anticipates lower slippages in unsecured and microfinance institutional loans during this quarter, along with steady recovery trends that could positively impact credit costs. Despite these positive projections, concerns are raised about weak deposit flows and high incremental credit-deposit ratios.
The report also highlights the likelihood of NIM revisions for FY27 due to pressure points on deposits, potentially leading to earnings revision. It mentions that PSU banks are likely to have a stable quarter, with notable performances expected from ICICI Bank, Kotak Mahindra Bank, and SBI among larger banks. Additionally, Karur Vysya Bank and AU Small Finance Bank are favored among mid-sized banks.
While frontline private banks are expected to demonstrate resilient earnings, softer earnings are foreseen for a few private and mid-sized banks. Most banks are expected to maintain steady asset quality, except for a possible increase in seasonal agri slippages in Q3. The report suggests that H2FY26 could be stronger, but there may be a need to reassess FY27 earnings expectations.
HSBC Mutual Fund, in a recent report, expressed optimism about banks and NBFCs, expecting improved net interest margins for banks in FY27. Private banks are projected to witness a recovery in asset quality, driving mid-teens earnings growth in FY27 after a slower FY26. NBFCs are experiencing robust earnings growth fueled by strong credit demand and improving margins due to declining interest rates.
