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Informist, Wednesday, Oct. 8, 2025

MUMBAI – Moderation in net interest margins and weak treasury income are expected to drag down the aggregate net profit of 11 banks under Nomura's coverage by 5% on year and on quarter in the September quarter. The broking firm estimates net interest margin to compress 5-40 basis points on quarter, with large banks faring better than mid-tier banks. Credit cost of larger banks is expected to be contained while that of mid-tier banks with higher exposure to unsecured loans will be elevated. Loan growth is likely to have picked up during the quarter but deposit growth is seen steady, it said. 

Nomura sees earnings momentum of banks improving from the December quarter as margin pressure subsides and asset quality improves. It prefers large banks over mid-tier players due to stronger return profiles and lower asset quality risks. ICICI Bank, State Bank of India, and Axis Bank are Nomura's favourite picks from the sector and these stocks have a 'buy' rating.

Loan growth of banks is expected to improve in the second half of 2025-26 (Apr-Mar), supported by the goods and services tax cuts and other tax relief measures. The system loan growth improved to 10.4% as of Sept. 19, from 9.5% as of Jun. 27, according to Nomura. A healthy loan growth of 10-16% on year and 3-6% on quarter is expected for larger banks, and muted growth of 7-8% on year and 3-5% on quarter is estimated for mid-size banks. Deposit growth is expected to be steady at 10-15% on year and 1-4% on quarter in the reporting quarter, as per the brokerage report.

The moderation in net interest margins is expected to bottom out in the September quarter and recover gradually as the benefit of reduction in cash reserve ratio flows through and deposit repricing catches up, it said. The moderation in NIMs of larger banks is expected to be capped at 8-12 bps sequentially due to the reduction in savings account rate and the rise in credit-deposit ratio. Among the larger players in the sector, only Axis Bank is expected to post a 25-bps decline in NIM due to the difference in reset period of repo-linked loans. On the other hand, for mid-sized banks, a sharper sequential fall of 20-40 bps is estimated due to adverse loan-mix changes and interest reversals from elevated slippages. 

The stress in unsecured retail and microfinance portfolios is likely to remain high, but improving delinquency trends and better collection indicate a gradual recovery, the report said. Recent floods in the northern and eastern parts of the country could weigh on asset quality in the near term, especially in segments such as microfinance and micro loan against property.  End

Reported by Akshat Saksena

Edited by Ashish Shirke

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