Bandhan Bank, Equitas SFB, AU SFB, Axis to see NIM fall; RBL Bank an outlier: Q2 preview
MOFSL expects sharper NIM declines for Bandhan Bank, Equitas SFB, AU SFB and Axis Bank, while RBL Bank could see a slight improvement.
- Oct 2, 2025,
- Updated Oct 2, 2025 9:45 AM IST
Motilal Oswal Financial Services (MOFSL) said the September quarter (Q2FY26) will likely mark the bottom for banking sector net interest margins (NIMs), with profitability expected to gradually recover in the second half of the year as deposit repricing and the phased CRR cut start to take effect.
According to the brokerage, credit growth remains modest. As of September 5, 2025, system-wide credit growth stood at 10.3 per cent year-on-year, reflecting weak demand across key retail and corporate segments. MOFSL expects systemic loan growth to sustain at 11 per cent in FY26E before improving to 12.5 per cent in FY27E, aided by pickup in consumption from GST rate cuts, income tax relief and lower borrowing costs.
System deposit growth held steady at 9.8 per cent YoY in September despite rate cuts. While banks continue to face challenges in mobilising low-cost CASA deposits, MOFSL said the moderation in policy rates has led to reductions in both savings and term deposit rates, which should lower cost of funds in H2 and aid NIM recovery.
“The impact of the large 50bp policy rate cut in June will be fully visible on lending yields in Q2, whereas the moderation in cost of funds will come with a lag. Hence, margins will contract for most banks this quarter before improving in subsequent quarters,” MOFSL said. The brokerage expects sharper NIM declines for Bandhan Bank, Equitas SFB, AU SFB and Axis Bank, while RBL Bank could see a slight improvement.
"NIMs are estimated to contract for most banks in our coverage. We estimate sharper NIM declines for Bandhan Bank, EQUITAS, AUBANK and AXSB, while RBL being the outlier with NIMs expected to improve slightly. However, deposit repricing is underway, and the phased CRR cut is further expected to support margin recovery in the coming quarters," MOFSL said.
MOFSL highlighted that stress remains in unsecured retail segments such as microfinance and credit cards, though collection efficiencies are improving. Select segments including micro-LAP, CV loans and affordable housing are also showing signs of stress, with additional risks from recent floods in northern and eastern states. While private and PSU banks are expected to keep credit costs under control, mid-size banks with higher unsecured exposure could report elevated provisions.
For Q2FY26, MOFSL estimates NII for its coverage universe to decline 0.9 per cent YoY and 1.8 per cent QoQ, while PPoP is projected to fall 5.5 per cent YoY and 14 per cent QoQ. Overall PAT is expected to decline 7.2 per cent YoY and 4.5 per cent QoQ. However, the brokerage sees earnings traction building from H2FY26, leading to a 17.7 per cent PAT CAGR over FY26–28E.
Private banks: PAT is forecast to fall 7.3 per cent YoY in Q2, with NII growth muted at 0.6 per cent YoY. MOFSL estimates HDFC Bank’s NII growth at 2.3 per cent YoY, ICICI Bank at 5.5 per cent, while Axis Bank, Kotak Mahindra Bank and Federal Bank are likely to report YoY declines. Over FY26–28E, private banks are expected to deliver nearly 20 per cent earnings CAGR.
PSU banks: PAT is projected to fall 7.1 per cent YoY in Q2, driven by NIM compression and lower treasury gains. NII is seen down 2.5 per cent YoY. However, MOFSL expects stable asset quality and forecasts PSU banks to post a 15.2 per cent earnings CAGR over FY26–28E.
Small Finance Banks: NIM pressure is expected to persist in Q2. AU SFB’s PAT is estimated to fall 13.4 per cent YoY, while Equitas SFB is seen reporting a small profit after a Q1 loss, though with weaker margins. Credit costs should ease gradually in H2.
Fintechs & payments: SBI Cards’ PAT is expected to rise 49.5 per cent YoY to Rs 600 crore, supported by strong festive spending. Paytm is projected to report a profit of Rs 134 crore in Q2, with revenues up 21 per cent YoY and contribution margins improving to 58.7 per cent.
Motilal Oswal Financial Services (MOFSL) said the September quarter (Q2FY26) will likely mark the bottom for banking sector net interest margins (NIMs), with profitability expected to gradually recover in the second half of the year as deposit repricing and the phased CRR cut start to take effect.
According to the brokerage, credit growth remains modest. As of September 5, 2025, system-wide credit growth stood at 10.3 per cent year-on-year, reflecting weak demand across key retail and corporate segments. MOFSL expects systemic loan growth to sustain at 11 per cent in FY26E before improving to 12.5 per cent in FY27E, aided by pickup in consumption from GST rate cuts, income tax relief and lower borrowing costs.
System deposit growth held steady at 9.8 per cent YoY in September despite rate cuts. While banks continue to face challenges in mobilising low-cost CASA deposits, MOFSL said the moderation in policy rates has led to reductions in both savings and term deposit rates, which should lower cost of funds in H2 and aid NIM recovery.
“The impact of the large 50bp policy rate cut in June will be fully visible on lending yields in Q2, whereas the moderation in cost of funds will come with a lag. Hence, margins will contract for most banks this quarter before improving in subsequent quarters,” MOFSL said. The brokerage expects sharper NIM declines for Bandhan Bank, Equitas SFB, AU SFB and Axis Bank, while RBL Bank could see a slight improvement.
"NIMs are estimated to contract for most banks in our coverage. We estimate sharper NIM declines for Bandhan Bank, EQUITAS, AUBANK and AXSB, while RBL being the outlier with NIMs expected to improve slightly. However, deposit repricing is underway, and the phased CRR cut is further expected to support margin recovery in the coming quarters," MOFSL said.
MOFSL highlighted that stress remains in unsecured retail segments such as microfinance and credit cards, though collection efficiencies are improving. Select segments including micro-LAP, CV loans and affordable housing are also showing signs of stress, with additional risks from recent floods in northern and eastern states. While private and PSU banks are expected to keep credit costs under control, mid-size banks with higher unsecured exposure could report elevated provisions.
For Q2FY26, MOFSL estimates NII for its coverage universe to decline 0.9 per cent YoY and 1.8 per cent QoQ, while PPoP is projected to fall 5.5 per cent YoY and 14 per cent QoQ. Overall PAT is expected to decline 7.2 per cent YoY and 4.5 per cent QoQ. However, the brokerage sees earnings traction building from H2FY26, leading to a 17.7 per cent PAT CAGR over FY26–28E.
Private banks: PAT is forecast to fall 7.3 per cent YoY in Q2, with NII growth muted at 0.6 per cent YoY. MOFSL estimates HDFC Bank’s NII growth at 2.3 per cent YoY, ICICI Bank at 5.5 per cent, while Axis Bank, Kotak Mahindra Bank and Federal Bank are likely to report YoY declines. Over FY26–28E, private banks are expected to deliver nearly 20 per cent earnings CAGR.
PSU banks: PAT is projected to fall 7.1 per cent YoY in Q2, driven by NIM compression and lower treasury gains. NII is seen down 2.5 per cent YoY. However, MOFSL expects stable asset quality and forecasts PSU banks to post a 15.2 per cent earnings CAGR over FY26–28E.
Small Finance Banks: NIM pressure is expected to persist in Q2. AU SFB’s PAT is estimated to fall 13.4 per cent YoY, while Equitas SFB is seen reporting a small profit after a Q1 loss, though with weaker margins. Credit costs should ease gradually in H2.
Fintechs & payments: SBI Cards’ PAT is expected to rise 49.5 per cent YoY to Rs 600 crore, supported by strong festive spending. Paytm is projected to report a profit of Rs 134 crore in Q2, with revenues up 21 per cent YoY and contribution margins improving to 58.7 per cent.