Tepid loan demand, compressed margins to drag Indian banks quarterly results
By Bharath Rajeswaran and Nishit Navin
BENGALURU, Oct 9 (Reuters) – Indian banks are set to report weak profits for the September quarter, under pressure from weak credit demand in the retail and corporate segments and margin compression due to central bank interest rate cuts, analysts said.
The Reserve Bank of India cut the interest rate by 100 basis points this year to stimulate consumption and investment in a slowing economy. Rate cuts tend to squeeze banks’ margins in the short term, as lenders reduce loan rates faster than they adjust deposit rates.
Analysts predict that private banks will record a year-on-year decline in profits in the September quarter, while net interest income (NII) may see only a marginal increase.
Industrywide profits are expected to fall 7% to 12% year-on-year this quarter as public banks underperform their larger peers.
Jefferies predicts big banks’ profits will fall 12% year-on-year, after growing 8% in the previous quarter and a marginal 2% in the June quarter.
The brokerage predicts a 5% drop in profits for private lenders and 20% for public sector banks. It expects credit growth to be roughly 11% and at a steady NII level.
Axis Bank will report its banking sector earnings on October 15, followed by Federal Bank, ICICI Bank, IDFC Bank and InduInd Bank later in the week.
“Asset quality trends are likely to remain stable due to controlled slippages and strong provision coverage ratios,” said Nitin Aggarwal of Motilal Oswal.
Nomura added that stress on unsecured retail and microfinance portfolios remains high but default trends are improving, although a gradual recovery in profits is likely from the second half of fiscal 2026.
Credit growth is expected to remain muted at around 10% in the September quarter; Corporate and large retail demand remains weak.
Rising bond yields are also likely to put pressure on treasury revenue. “Treasury gains will not buffer gains in the September quarter as bond yields rise,” Axis Securities said.
Analysts expect a recovery from the second half of fiscal 2026, driven by stronger consumption, government tax cuts and faster growth in unsecured loans.
“We expect the September quarter to be a turning point; earnings momentum picks up from the December quarter as margin pressure eases and asset quality trends strengthen,” Nomura analyst Ankit Bihani said.
With the RBI keeping interest rates unchanged in recent meetings, banks’ margins are expected to see some relief in the ongoing quarter as borrowing costs fall and deposit rates adjust.
Banks, private lenders and state-run banks have gained 10.1%, 10.6% and 15% year-to-date, outperforming the Nifty 50’s 6% rise.
(Reporting by Nishit Navin and Bharath Rajeswaran; Editing by Eileen Soreng)
