 "Q3FY26 bank earnings to improve, but NIM concerns loom: Elara Securities")
Banks Q3 preview: Elara Securities expects that the October–December quarter (Q3FY26) to be better for India's banking and financial sector. The brokerage expects public-sector banks and frontline private banks to report resilient financial results. On the contrary, a few private and mid-sized banks, it said, may report softer earnings.
"The second half of the financial year 2026 will likely be better with a steady improvement in important parameters, which will support banks. However, the earnings expectations for the financial year 2027 will likely need a re-assessment, at least on Net Interest Margins (NIMs)," Elara Securities said in a report.
In this backdrop, Elara Securities favours ICICI Bank, and State Bank of India within the large banks segment. Among mid-sized banks, the brokerage favours Karur Vysya Bank, and AU Small Finance Bank.
The risk-reward is appearing to be tilted towards frontline private banks with strong earnings, and reasonable valuation, it said. CATCH STOCK MARKET LIVE UPDATES TODAY
What to expect from banks' Q3 results? Elara Securities' view
According to the brokerage, overall system loan growth is more than 11 per cent for the third quarter, as per the Reserve Bank of India's data, which is better than expected. The better loan growth will likely be visible across most banks, it said.
Deposit growth, however, has likely remained softer during this period. "Higher credit-deposit ratios at the system level going into a seasonally strong fourth quarter would be a key variable," the brokerage said.
That apart, analysts at Elara Securities expect the net interest margins (NIMs) of the banks and financial institutions to have improved during the third quarter, though they remain cautious on the future trajectory. Elara Securities believes that the funding costs will likely remain under pressure in because of the softer Current Account and Savings Account (Casa) flows, stickier bulk deposit rates, and rate hikes in certain retail deposit buckets. Some of the factors have already started to become visible.
High competition from the Public-Sector Banks (PSBs) will entail limited mobility on yields, Elara Securities said in a note.
The high investment risk, emerging from the gap between the repo rate and G-sec yields, will likely pose challenges on interest on investments. Additionally, the possibility of further rate cuts and transition on Liquidity Coverage Ratio (LCR) changes in the financial year 2027, indicating further concern for margins, the brokerage said.
Elara Securities believes that the commentary around NIMs will dominate the discussion.
As far as asset quality is concerned, a steady recovery trend will characterise the third quarter of the current financial year. The steady asset quality will help cushion the credit cost impact for banks and financial institutions.
The brokerage sees some seasonal slippage in the agricultural loan category. However, October–December will be a better time for personal loans. An improved performance is expected in the microfinance institution segmen, it said. Improvement in credit costs, however, may lag expectations.
Elara Securities suggested monitoring the under ₹10-lakh loan category, an essential segment for a few small finance banks and non-banking financial institutions. ============= Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.