Q3 banking preview: YES Bank, Bandhan Bank, IndusInd Bank may see soft Dec quarter

ICICI Securities forecasts a relatively stronger Q3FY26 for SBI, Kotak Mahindra Bank, City Union Bank (CUBK), and Karur Vysya Bank (KVB), while IndusInd Bank (IIB), Yes Bank, and Bandhan Bank could see softer results. It pegs system loan growth at ~3% QoQ with likely acceleration at Axis and Federal. While NIM recovery seems to have been pushed out due to the recent 25bps rate cut and deposits growth staying range bound, NII growth YoY (estimated at ~4% YoY for coverage banks) has seemingly bottomed out.

Treasury income may see softness while a tight leash on opex persists. Barring agri’s seasonal uptick, we see comfortable asset quality (AQ) trends for most banks with MFI slippages improving and unsecured retail exhibiting stable trends. Separately, two large stress resolutions could provide a fillip to PSU banks. Overall, we see NII growth softness percolating to PPOP (~4% YoY) and PAT (~2% YoY). We prefer Kotak and Axis among large private banks, and RBL and KVB over IIB and Yes within midsmall private ones. We believe SBI would benefit from any PSU reforms and likely be outside of consolidation, if any."
 

Loan Growth and Drivers

ICICI Securities expects about 3% QoQ loan growth, with drivers differing across banks. RBI data suggests system-wide loan growth of nearly 11.5% YoY (about 3% QoQ), while deposit growth is lower at around 10% YoY (about 2.5% QoQ). MFI disbursement has improved but remains below normal, while unsecured retail disbursement stays healthy. The brokerage estimates strong loan growth above 15% YoY for IDFC First Bank, Kotak Mahindra Bank, CUBK, KVB, DCB Bank, and RBL Bank, with SBI expected to deliver about 13% YoY. IIB is the only bank expected to see YoY de-growth, with Bandhan's growth affected by a large asset sale.
 

Margins and NIM Outlook

"NIM to be stable (+/-5bps) QoQ for most banks. In our view, a trade-off between loan growth (especially wholesale) and NIM still persists, albeit with weaker intensity. The impact of the Dec’25 rate cut is likely to be limited on Q3FY26 core yields. However, loan yields would be impacted by agri slippages, mix change and MCLR re-pricing. Positively, cost of deposits should sustain easing, led by term deposits repricing. Private banks such as Yes, DCB, SIB, RBL and Bandhan have further cut their savings rates. We estimate NIM to be broadly stable QoQ (+/- 5bps) for most of the banks, with some support from CRR cut. We expect CUBK, RBL and IDFCFB to report uptick in NIM QoQ. We expect Axis and SIB to report 8–9bps QoQ dip, it said.

NIM recovery is delayed, but NII growth may have bottomed out:

NIM recovery delayed but NII growth potentially bottomed out. NII growth has been trailing loan growth for multiple quarters now due to pressure on NIM. While NII growth still lags loan growth, on both QoQ and YoY basis, we believe growth itself may have bottomed-out. For banks under coverage, we see NII growth rising to ~4% YoY (~5% ex-IIB) vs. 1–3% YoY in the last three quarters. While the Dec’25 rate cut has delayed NIM recovery, NII growth YoY seems to have bottomed-out, ICICI noted.

Profitability and Treasury Income

The brokerage believes that the profitability may remain muted; estimate PAT growth of ~2% YoY. We note that yields on 10-year G-Sec have been range-bound during the quarter and the OMO window has been towards the fag-end of the quarter. We expect muted treasury contribution for the banks. Select banks should see healthy gains from listing of their subsidiaries in the quarter.

Asset Quality and Slippages

Asset quality (AQ) comfortable, though slippages could rise QoQ on agri. Barring seasonality, we see comfortable overall gross slippages for most of the banks. We expect overall slippages to rise QoQ for banks such as HDFCB, Axis, DCBB, and SBI, primarily led by the seasonal uptick in agri slippages. Axis could see higher slippages, even on a YoY basis, due to technical slippages. We estimate a sharp decline in slippages for KVB QoQ and a reasonable dip for RBL QoQ. Wholesale AQ is likely to remain strong, with negligible gross slippages and negative net slippages. As per our interaction with banks, the demand for export dispensation has been limited; although there have been media reports (link) about extending the deadline beyond Dec’25. We are also closely monitoring the health of a few large state government exposures; however, we do not see imminent stress as yet."

For MFIs and unsecured retail products

"Improving slippages for MFI and broadly stable for unsecured rerail. For majority of the banks, we see broadly stable trends on unsecured PL and credit card stress formation. We expect flattish slippages QoQ for credit card for RBL. We expect a sharp 25–40% QoQ improvement in MFI slippages for RBL and IDFCFB. IIB seems to be experiencing unique challenges and may see only a marginal improvement in MFI slippages QoQ," it said.

Sector Stance and Recommendations

ICICI Securities maintains a positive stance on the sector. "We prefer our positive stance on the banking sector. While NIM recovery has been pushed-out due to the recent repo rate cut, we believe NII growth has bottomed-out. Loan growth is a key monitorable; though, it has been holding-up reasonably well."

"Overall, we see muted (has a 'buy' rating on Axis Bank, State Bank of India City Union Bank, DCB Bank, Federal Bank, HDFC Bank, IDFC First Bank, Karur Vysya Bank, RBL Bank, South Indian Bank. It has given a 'hold' rating on YES Bank and Bandhan Bank, while it has given IndusInd Bank a 'reduce' tag.