Banks & NBFCs Set for Stable Q3 FY26 on Strong Loans, Healthy Assets

Loan growth remained robust across the system, with private banks reporting year-on-year growth of about 11% and state-owned banks posting over 12% growth. NBFCs also continued to see healthy expansion in assets under management, the report said.

However, deposit mobilisation remained a challenge, pushing the system loan-to-deposit ratio to elevated levels of around 82%, a zone historically viewed as uncomfortable by the Reserve Bank of India.

Net interest margins (NIMs) for most private sector banks are expected to be flat to marginally higher in Q3FY26, barring Axis Bank, while state-owned banks are likely to see a marginal decline of 3-6 basis points as they pass on rate cuts more quickly.

Among public sector lenders, State Bank of India has indicated confidence in maintaining stable margins in the near term, with some recovery expected in the following quarter.

Asset quality trends remain broadly healthy across the sector. Improvement is expected in personal loans, microfinance and commercial credit segments, although seasonal stress in farm loans may lead to a temporary rise in non-performing loans for some large private banks.

NBFC asset quality is projected to be mixed, with gold loan-focused lenders and diversified financiers showing stronger resilience.

Further, Nuvama identified ICICI Bank, Axis Bank, Bank of Baroda and SBI among banks, and Shriram Finance and Muthoot Finance among NBFCs, as its preferred picks for the quarter, citing strong growth visibility and profitability. The brokerage remains cautious on select names where valuations appear stretched or earnings recovery remains uncertain.

The report highlighted that while credit demand continues to support balance sheet growth, analysts flagged deposit mobilisation and margin sustainability as key monitorables for the sector in the coming quarters, particularly if deposit growth fails to revive meaningfully by early FY27.

- ANI