India's banking sector is poised for a steady Q4FY26 with robust credit growth and improving deposit mobilisation, a Nuvama report finds. PSUs outpaced private banks in loan growth, while asset quality remains stable and margins are under watch.
India's banking sector is set to close Q4FY26 on a steady footing, with credit growth holding up and deposit traction showing signs of improvement, according to Nuvama's latest sector preview. 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.
Healthy Credit Expansion Across Banks
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.
Deposit Growth and CASA Mobilisation
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 Remain Under Watch
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 Continues to be Stable
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.
Mixed Outlook for NBFCs
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.
Sector Outlook and Key Monitorables
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)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)