Banks to report steady earnings growth in Q4; private lenders’ profits seen growing faster than PSBs

Amid the ongoing conflict in West Asia, which has led to a surge in oil prices and disrupted supply chains, one sector that is relatively better placed for now is banking. The sector is expected to report steady earnings growth in the January-March quarter, the fourth quarter of financial year 2025-26 (Q4FY26), with stable asset quality.

Within the sector, private banks are likely to see stronger net profit growth than their public sector rivals.

Margins may also be range-bound, with credit growth continuing to outpace deposits. “The repo rate cut of 25 basis points in December 2025 is expected to be fully reflected in lending yield transmission in Q4. Consequently, funding costs remain elevated, and most banks have not reduced their term deposit/ savings account rates after the recent rate cut,” pointed analysts at Motilal Oswal Financial Services.

Overall, divergent trends are expected on the net interest margin (NIM) front in Q4, with large private lenders like ICICI Bank and HDFC Bank expected to report flat margins, while Axis Bank and Kotak Mahindra Bank are likely to report a decline, according to the broking firm. It believes mid-sized banks are better placed, with AU Small Finance Bank, Bandhan Bank, Equitas SFB, and IDFC First Bank likely to report NIM expansion.

The banking sector earnings season will kick off this week, with the two largest private sector banks in the country—HDFC Bank and ICICI Bank—reporting their Q4 results on Saturday. Smaller rival YES Bank will also report its earnings on the same day and this will be the first quarterly earnings release under new MD and CEO Vinay Tonse, who took charge earlier this month.

The Motilal Oswal analysts expect private banks to report 11.9% year-on-year (YoY) growth in profit after tax. But public sector banks (PSBs) are likely to report only a 2.1% growth in their profit, amid modest treasury gains due to a rise in bond yields.

“Against the backdrop of a volatile macro environment, we envisage the banking sector delivering a relatively steady quarter with healthy loan/ deposits growth, improved slippages and broadly stable RoA (return on assets),” said Jai Prakash Mundhra of ICICI Securities.

Mundhra estimates private banks to report close to 15.5% net profit growth in Q4, while net interest income is seen rising 11.2%.

Asset quality stable, but impact of West Asia conflict monitorable

Over the past few years, banks have considerably reduced their non-performing assets. While Q4 is unlikely to see any major asset quality issues across banks, the current conflict in West Asia, which has led to a surge in oil prices and disrupted the supply of natural gas and other inputs, has had an impact on several sectors, and that is something that will have to be watched.

For instance, there have been issues of non-availability of commercial LPG supply, which has impacted several small-scale operators, such as restaurants and hotels. Industries that depend on gas and crude oil and those having exposure to West Asia also have seen their production being disrupted in the past month. Should the conflict sustain and their production remain affected for longer time, it will reflect on their earnings and asset quality.

“As of now, we are not overly worried about the asset quality, though will closely monitor early delinquencies,” said Mundhra.

The broking firm will closely monitor situation for small and medium enterprises, which are more leveraged to the global macros. “Overall asset quality should remain comfortable, though there may be a few pockets of stress,” said Mundhra.

Dnyanada Vaidya of Axis Securities also felt that the asset quality outlook appears favourable with stress in the unsecured loans segment now behind and asset quality metrics in the secured and corporate loan segments holding up well.

“However, focus will remain on management commentary on potential risks arising from the geopolitical turmoil and its implications on asset quality,” said Vaidya.

Given that deposit growth has continued to lag credit growth, management commentary on deposit mobilisation, especially accretion of CASA (current account and savings account) deposit, will be watched out for, added Vaidya.