JM Financial sees steady growth in financials; favours select bank stocks

The growth momentum in the Indian financial sector remains intact, says JM Financial, which continues to prefer banks with strong liability franchises, diversified loan growth engines, and solid capital buffers. 

 

The brokerage remains positive on mid-sized banks and small finance banks (SFBs), although it noted that these institutions are more exposed to volatility in unsecured and microfinance portfolios.

 

Among its top stock picks, JM Financial continues to back large lenders, including State Bank of India (SBI), ICICI Bank, Bank of Baroda (BoB), and Axis Bank. The brokerage also has a bullish outlook on smaller players, including Ujjivan Small favours Bank and DCB Bank. In the non-banking financial company (NBFC) and housing finance company (HFC) space, it likes Aditya Birla Capital (ABCap), Shriram Housing Finance (SHFL), Tata Capital, Aadhar Housing Finance, and PNB Housing Finance (PNB HF).

 

 

The brokerage, in its report, highlighted that 24 banks and four NBFCs have released their provisional updates for the third quarter of FY26, showing sustained loan growth. However, deposit accretion has continued to lag, resulting in a higher credit-deposit ratio across most banks.

 

"Aggregate loan growth for banks that reported provisional updates for Q3 FY26 came in at a strong 12.6 per cent Y-o-Y and 4.1 per cent Q-o-Q, outpacing the sector’s overall loan growth of 12 per cent Y-o-Y and 4.2 per cent Q-o-Q as of December 15, 2025," the firm noted. "Deposits grew 10.3 per cent Y-o-Y and 2.1 per cent Q-o-Q, compared to the sector’s 9.4 per cent Y-o-Y and 2.5 per cent Q-o-Q growth."

 

Within the NBFC space, JM Financial pointed to mixed performances. Bajaj Finance saw lower-than-expected assets under management (AUM) growth of 22 per cent Y-o-Y and 5 per cent Q-o-Q, while L&T Finance, Mahindra & Mahindra Financial Services (MMFS), and Poonawalla Finance stood out with stronger growth.

 

Loan growth strong across banks

 

The brokerage highlighted that the provisional updates for Q3 FY26 revealed strong loan growth across the banking sector. Private sector banks grew their loan books by 12.4 per cent Y-o-Y and 3.2 per cent Q-o-Q, driven by HDFC Bank, Kotak Mahindra Bank, and others. Public sector banks grew their loans by 12.5 per cent Y-o-Y and 4.8 per cent Q-o-Q. Small finance banks, however, outperformed, posting loan growth of 19.2 per cent Y-o-Y and 6.8 per cent Q-o-Q.

 

Deposit growth lags, small finance banks excel

 

While deposits grew 10.3 per cent Y-o-Y and 2.1 per cent Q-o-Q in the third quarter, private banks recorded a more robust 11.5 per cent Y-o-Y and 1.8 per cent Q-o-Q growth, said JM Financial. Public sector banks lagged slightly, with deposit growth of 9.2 per cent Y-o-Y and 2.2 per cent Q-o-Q. In contrast, small finance banks delivered strong deposit growth of 20.2 per cent Y-o-Y and 4.2 per cent Q-o-Q.

 

Credit-deposit ratios climb

 

With loan growth continuing to outpace deposit growth, credit-deposit (CD) ratios, JM Financial said, have climbed across the banking system. The aggregate CD ratio stood at 81.6 per cent as of December 15, 2025, up from 79.7 per cent a year ago. HDFC Bank’s CD ratio stood at 99.5 per cent, with many mid-sized private and public sector banks seeing significant increases. Small finance banks, on the other hand, maintained high loan-to-deposit ratios.

 

Casa growth shows modest improvement

 

Current account savings account (CASA) balances showed modest improvement in Q3 FY26, particularly in public sector banks, which recorded a 2.7 per cent Q-o-Q increase. Private sector banks saw stable CASA growth. Overall, CASA balances for the provisional sample grew 9.0 per cent Y-o-Y and 1.3 per cent Q-o-Q, with CASA ratios remaining stable, according to JM Financial.

 

Improvement in collection efficiency and asset quality

 

JM Financial noted slight improvements in collection efficiency (CE) for Ujjivan Small Finance Bank, which rose to 99.7 per cent in Q3 FY26 from 99.6 per cent in the previous quarter. Bandhan Bank also saw improvements, particularly in its microfinance portfolio. Both banks are witnessing a gradual improvement in asset quality in their microfinance segments.

 

Nbfc performance shows mixed results

 

The NBFC sector exhibited mixed results. Bajaj Finance saw lower-than-expected assets under management (AUM) growth of 22.1 per cent Y-o-Y and 5.1 per cent Q-o-Q. In contrast, Mahindra & Mahindra Financial Services (MMFS) reported a strong 7 per cent Y-o-Y and 30 per cent Q-o-Q increase in disbursements. Bharat Housing Finance (BHFL) delivered strong AUM growth of 23.2 per cent Y-o-Y but showed a slight slowdown in disbursements. L&T Finance Holdings (LTFH) reported healthy retail loan growth, while Poonawalla Fincorp posted an impressive 78 per cent Y-o-Y and 15 per cent Q-o-Q increase in AUM.

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(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.)