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Informist, Saturday, Dec. 27, 2025

 

MUMBAI – The December quarter earnings of banking, financial services, and insurance companies under Elara Securities (India) Pvt. Ltd.'s coverage are expected to be better, buoyed by multiple factors, including a pick-up in loan growth and improving net interest margins. However, it also expects certain pressure on deposits and anticipates net interest margin revisions, which could lead to revision of earnings, Elara Securities said in a report.

 

The brokerage expects lower slippage in unsecured and microfinance institutions and steady recovery trends, which may benefit credit costs, to underpin its better outlook for the Oct-Dec earnings of these companies. On the other hand, the brokerage is cautious about deposits due to a weaker flow at the industry level and incremental credit-to-deposit ratio running very high, and the impact of recent changes in the labour law on operating expenditure.

 

Elara Securities projects the impact of the latest rate cut by the Reserve Bank of India to be largely seen in the March quarter, while the net interest margins are expected to improve in Oct-Dec. 

 

The brokerage sees a few headwinds to a better outlook for net interest margins in 2026-27 (Apr-Mar) such as pressure on funding costs seen in softer current account and savings account flows, stickier bulk deposit rates, and rate hikes in certain retail deposit buckets. Additionally, higher competition from public sector banks is hindering the manoeuvrability of yields, Elara Securities said.

 

The widening gap between the repo rate and government security rate after the central bank lowered the former could increase the reinvestment risk, posing challenges to interest on investments, the brokerage said. Moreover, the possibility of further rate cuts and transition on liquidity coverage ratio changes in FY27 could have certain vulnerabilities in net interest margins, it said.

 

As per the industry trends, the brokerage anticipates a better quarter for personal loans and improving performance in the microfinance segment, while improvement in credit cards may still lag expectations, it said. The brokerage suggests keeping an eye on sub-INR 1 million ticket size loans, which are essentially for a few small finance banks and non-banking finance companies. It expects the growth in asset quality to be steady even as most banks now have limited cushion to credit costs.

 

For the private players, the broking firm expects mixed growth for FY27. "We expect H2FY26 (Oct-Mar) to be better, with steady improvement likely in most critical parameters (certain tailwinds at play) supporting banks, but FY27 earnings expectations may need a reassessment, at least on NIMs," Elara Securities said. 

 

The broking firm continues to maintain ICICI Bank Ltd. and Kotak Mahindra Bank Ltd. as its top picks in the sector. "The valuations of mid-tier private (sector) banks seem rather full, and a re-rating hereon may be slow," it said. "Within the PSU basket, we continue to prefer SBI (State Bank of India)." However, it believes a sustained re-rating may take longer.  End

 

Reported by Simran Rede

Edited by Tanima Banerjee

 

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