Private lenders likely to fare better than public peers in Q4

Banks are expected to report divergent earnings in the March quarter. Private lenders would likely record net profit growth of nearly 12% year-on-year in Q4 FY26, while public sector banks would post a modest about 2% profit expansion, according to analysts.

Margins are likely to face some pressure, though asset quality trends would remain broadly stable despite the Middle East conflict injecting fresh business uncertainty-particularly for business loans and commercial vehicle portfolios.

“For private banks, we estimate net interest income growth of 8.4% and profit after tax growth of 11.9% year-on-year in Q4 FY26,” Motilal Oswal said in a note. “We estimate PSU banks profits to grow by 2.1% year-on-year, amid yield repricing, limited reduction in cost of funds, and modest treasury gains due to a rise in bond yields.”

Rise in yields is a key variable. The 10-year benchmark averaged 6.69% last quarter-up 16 basis points sequentially-which could translate into treasury losses or significantly lower gains for some lenders compared to prior quarters.

SBI & HDFC Bank

Among large banks, State Bank of India is expected to report a sequential dip in profits, with estimates ranging between ₹19,500 crore and ₹20,000 crore, weighed down by weak treasury performance. Loan growth is expected to be broadly in line with the industry, but operating expenses may rise on the back of higher employee costs. Seasonal stress in the agriculture portfolio is also likely to push up slippages and provisions.
HDFC Bank, by contrast, is expected to deliver a steadier quarter, with net profit estimates in the ₹19,200-19,500 crore range. The lender’s provisional business data pointed to more than 10% loan growth and deposit growth of nearly 13%, though slippages and provisions are expected to rise modestly due to seasonal factors.

Margins, Loan Growth & Asset Quality

Loan growth held up well through the March quarter. Among banks that released business updates, private lenders reported advances growth of 13% year-on-year and state-owned banks 14.4%, excluding IndusInd Bank.

On margins, the picture is nuanced. “NIMs are likely to remain range-bound for private banks, decline marginally for PSUs, while mid-sized banks could report an expansion,” Nuvama Institutional Equities said in a note. “Loan growth sustained its momentum supported by liquidity buffers and residual CRR benefits. Deposit growth also picked up, largely driven by wholesale funding, which may curb cost-of-funds benefits during the quarter. Treasury gains are expected to moderate due to the spike in bond yields.”

Systematix Institutional Equities expects net interest margins (NIMs) to be marginally lower-declining around five basis points-to remaining flat on-quarter. While yields on advances would continue to ease, the benefit from earlier term deposit rate reductions is expected to partially offset that pressure. The Iran war has however emerged as a watch item, with analysts flagging building up of potential stress in the MSME segment.

The Road Ahead

Looking beyond Q4, the outlook carries some caution. Analysts expect loan growth momentum to ease modestly as higher inflation and economic headwinds from the war weigh on demand. NIMs are seen stable to improving marginally while credit costs may rise marginally as some stress accumulates across portfolios.