Banks to see healthy growth in Q4FY26, but margin pressures and risks remain: Nuvama

The report underscores that "loan growth sustained the momentum supported by liquidity buffers and residual CRR benefits," highlighting the system's resilience despite evolving macro conditions.

Business updates released so far point to healthy credit expansion across segments. Private banks have reported loan growth of about 13 per cent year-on-year, while public sector banks have clocked a stronger 14.4 per cent YoY rise.

On the liabilities side, deposit growth has picked up pace after a relatively subdued period. Nuvama attributes this to wholesale funding, stating that "deposit growth accelerated, primarily led by wholesale funding, which may limit CoF benefits in Q4FY26."

However, the brokerage flags encouraging trends in CASA mobilisation for select banks, calling it a "positive surprise" for players such as HDFC Bank, Kotak Mahindra Bank, Bandhan Bank and AU SFB.

Margins however are expected to remain under watch. Following the 25bp repo rate cut in December 2025, funding costs remain elevated, consequently net interest margins (NIMs) are likely to remain range bound for private banks, decline marginally for PSUs while mid-sized banks could report an expansion. This divergence reflects differing balance sheet structures and liability strategies across lender categories.

Asset quality, meanwhile, continues to be stable across most segments, offering comfort to investors. Nuvama observes that "asset quality remains largely stable across segments," although it cautions that "the ongoing war poses a potential risk, particularly to the MSME segment." At the same time, improvements are expected in retail segments such as personal loans, microfinance and credit cards.

For non-banking financial companies (NBFCs), the outlook is mixed. The report notes NBFC to report a mixed set, reflecting divergent trends across business models.

Overall, the sector's earnings trajectory remains supported by stable credit growth and improving deposit mobilisation, even as margin pressures and macro risks linger. The brokerage concludes that while growth visibility remains intact, the interplay between funding costs, margin trajectory and external risks will be critical to monitor in the coming quarters. (ANI)