YES Bank, IndusInd Bank, SBI, BOB & more: Q3 results previews, targets for banking sector

Indian banks are expected to demonstrate a visible recovery in their third quarter of FY26, according to a preview by JM Financial. The report highlights that the improvement comes after a weaker first half, with the sector benefitting from stronger credit momentum, reduced cost pressures, and better asset quality. JM Financial notes: "We expect 3QFY26 to reflect visible improvement in banks’ performance after a weak 1HFY26, driven by stronger credit momentum, easing cost of funds pressure and improving asset quality trends."

Across JM Financial's coverage universe of 17 banks, credit growth is forecast to reach 11.8% year-on-year in Q3, up from 11.1% in the previous quarter. Deposit growth is anticipated to remain lower at approximately 10.2% YoY, resulting in an elevated credit-deposit (CD) ratio of around 85%, compared with 84% in Q2. An additional repo rate cut of 25 basis points in December 2025 will impact net interest margins (NIMs) in subsequent quarters, but for Q3, NIMs are expected to be supported by the full effect of Cash Reserve Ratio (CRR) reductions.

Loan momentum is projected to remain strong across both large and mid-sized banks. Large banks are expected to post quarter-on-quarter loan growth of about 3.5% to 4.5%, while mid-sized and small finance banks (SFBs) are anticipated to outperform with 5% to 7.5% growth. Federal Bank, IndusInd Bank, and Bandhan Bank are expected to see relatively lower sequential loan growth compared to peers.

Deposit accretion, however, continues to lag behind credit expansion. Public sector banks are forecast to grow deposits by 9.4% YoY, whereas private sector banks are expected to achieve 10.9% YoY growth. This trend is likely to keep the overall CD ratio elevated at about 85%, indicating persistent strong credit demand amid tighter deposit conditions.

JM Financial observes that "Margin stabilisation expected; CRR cuts offset earlier rate-cut drag and seasonality: NIM pressure is expected to largely stabilise in 3QFY26, supported by the benefit of CRR reductions (100 bps from Sep’25), which will compensate for the residual impact of the earlier 100bps rate cut." NIM for the coverage universe is estimated at 3.1% in Q3 versus 3.2% in Q2, with large banks broadly stable and mid-banks/SFBs expected to achieve modest improvements.

Asset quality across the sector appears resilient, with stress in unsecured segments moderating and collection efficiencies improving through Q2 and into Q3. Slippages are expected to decline, and credit costs for the system are forecast at 0.6% for Q3, remaining stable versus the previous quarter. Large banks such as HDFC Bank, State Bank of India, and ICICI Bank are projected to maintain credit costs around 0.5%.

For mid-cap banks and SFBs, JM Financial expects further improvement in credit costs. AU SFB’s figure is set to decline to 1.4% from 1.7% in Q2, while Ujjivan and Equitas are projected at 1.9% and 2.0% respectively, down from 2.8% and 2.3% in Q2. These trends are attributed to recovering microfinance collection rates.

With respect to profitability, the brokerage expects the momentum to turn positive in Q3. Net interest income (NII) growth is forecast at 4.7% YoY, an increase from 2.9% in Q2, while pre-provision operating profit (PPoP) is estimated to rise 12.8% YoY. Profit after tax (PAT) could see marginal positive growth of 0.3% YoY following negative trends in prior quarters.

Return on assets (RoA) for the universe is anticipated to reach 1.3%, with return on equity (RoE) at 12.5%. Among large banks, HDFC Bank and ICICI Bank are expected to deliver RoAs of 1.8% and 2.2% respectively, while SBI is projected at 0.9%. SFBs are likely to post even stronger profitability metrics, with Ujjivan at 1.4% RoA and AU SFB at 1.5% RoA.

JM Financial remains optimistic on banks with robust liability franchises, diversified loan growth engines, and solid capital buffers. The report's top picks include Axis Bank, ICICI Bank, Bank of Baroda, SBI, Ujjivan, DCB, and City Union Bank. The brokerage highlights several key monitorables for the coming quarter: deposit repricing, retail mobilisation, lending and liquidity ratios, and the sustainability of margin trends as policy transmission continues.

JM Financial has a picked Axis Bank (Target Price: Rs 1,475), ICICI Bank (Target Price: Rs 1,700), Bank of Baroda (Target Price: Rs 350), State Bank of India (Target Price: Rs 1,140), Ujjivan Small Finance (Target Price: Rs 65) and City Union Bank (Target Price: Rs 335) as its top picks from the banking space. All these lenders have a 'buy' rating on them.

Beside them, it has a 'buy' rating on HDFC Bank (Target Price: Rs 1,160) and DCB Bank (Target Price: Rs 215) also. It has given an 'add' rating to Punjab National Bank (Target Price: Rs 130) and AU Small Finance (Target Price: Rs 1,050).

It has given a 'reduce' rating on Equitas Small Finance Bank (Target Price: Rs 60), Kotak Mahindra Bank (Target Price: Rs 2,160), IndusInd Bank (Target Price: Rs 775), Federal Bank (Target Price: Rs 240) and Bandhan Bank (Target Price: Rs 335). YES Bank with a target price of Rs 19 has a 'sell' rating from JM Financial.