Indian banks are poised to report subdued earnings for the September quarter, weighed down by tepid loan demand across retail and corporate segments and margin contraction due to rate cuts by the central bank, analysts said.
The Reserve Bank of India has lowered its interest rate by 100 basis points this year to revive consumption and investment amid 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 forecast private banks to post a year-on-year decline in profit in the September quarter, while net interest income (NII) may see only a marginal uptick.
Sector-wide profit is forecast to fall 7%-12% year-on-year in the quarter, with state-owned banks underperforming larger peers.
Jefferies estimates profits of large banks will fall 12% year-on-year, after posting an 8% growth in the year-ago quarter and a marginal 2% growth in the June quarter.
The brokerage forecasts 5% drop in profit for private lenders and a 20% decline for public sector banks. It expects loan growth at roughly 11% and a flat NII.
Axis Bank will kick off the banking sector earnings on October 15, followed by Federal Bank, ICICI Bank, IDFC Bank, IndusInd Bank later in the week.
"Asset quality trends are likely to remain stable due to controlled slippages and robust provision coverage ratios," said Nitin Aggarwal of Motilal Oswal.
Nomura added that stress in unsecured retail and microfinance portfolios remains elevated but delinquency trends are improving, although a gradual profit recovery is likely from the second half of fiscal 2026.
Loan growth is expected to remain muted at around 10% in the September quarter, with corporate and big-ticket retail demand still soft.
Rising bond yields are also likely to weigh on treasury income. "With bond yields rising, treasury gains will not cushion earnings in the September quarter," Axis Securities said.
Analysts expect a recovery from the second half of fiscal year 2026, driven by stronger consumption, government tax relief, and faster growth in unsecured credit.
"We expect the September quarter to mark a turning point, with earnings momentum improving from the December quarter onwards as margin pressure eases and asset quality trends strengthen," said Ankit Bihani, analyst at Nomura.
With the RBI keeping rates unchanged in recent meetings, banks' margins are expected to get some relief from the ongoing quarter as borrowing costs fall and deposit rates adjust.
Banks, private lenders and state-owned banks have gained 10.1%, 10.6% and 15% year-to-date, outperforming the Nifty 50's 6% rise.
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