The Indian banking sector is expected to post subdued earnings growth in Q4FY25, driven by modest loan and deposit growth, pressure on net interest margins (NIMs), and rising slippages in unsecured and microfinance segments. However, improved recoveries and regulatory changes may aid credit costs.
According to Motilal Oswal Financial Services (MOFSL), net interest income (NII) for its banking coverage universe is estimated to rise 3.9% YoY in Q4FY25, while pre-provision operating profit (PPoP) may decline 0.7% YoY but grow 3.5% sequentially. Private banks’ profit after tax (PAT) is expected to fall 3% YoY, while PSU banks may post a 4.5% YoY earnings growth.
Overall earnings for MOFSL’s banking universe are seen rising a modest 0.5% YoY in Q4FY25, with an estimated 11.8% CAGR over FY25–27E.
System-wide credit growth moderated to 11.1% in Q4FY25, down from 16.5% a year ago, due to weaker demand in secured products, stress in unsecured loans, and a high credit-deposit (CD) ratio. MOFSL projects credit growth to remain muted at 12% in FY26E.
Deposits grew 10.2% YoY, with continued challenges in mobilizing low-cost CASA deposits as depositors favored high-yield term deposits. This trend is likely to increase the cost of funds (CoF) and further pressure NIMs. With inflation trending lower, MOFSL anticipates two to three rate cuts in FY26, which could impact asset yields, particularly in the first half of the fiscal year.
As RBI’s repo rate cuts begin to take effect, lending yields are softening, while funding costs are expected to remain elevated in 1HFY26 due to ongoing efforts to attract deposits. A decline in the weighted average lending rate (WALR) on outstanding loans indicates transmission of rate cuts. However, the 50 bps CRR reduction in December 2024 and recent MCLR adjustments by select PSU banks may provide near-term support to NIMs.
Here’s what to expect from Q4 results of top banks:
India’s largest private sector lender, HDFC Bank, is expected to post a 3.2% year-on-year (YoY) rise in net profit for Q4FY25, with net interest income (NII) likely to grow 5.5% YoY, according to MOFSL. Cost ratios are projected to remain stable, while margins may see a slight moderation. Slippages are expected to be contained, and asset quality is anticipated to improve.
ICICI Bank is expected to report strong performance in Q4FY25, supported by healthy business growth and further improvement in asset quality. Net profit is estimated to rise 12.3% YoY, with NII likely to grow 9.2% YoY. Margins are also expected to expand during the quarter.
Axis Bank’s net profit is projected to increase by 0.8% YoY, while NII is expected to grow 5.8% YoY. Margins are likely to remain stable. Improved other income and lower cost ratios could support overall profitability, while credit costs are expected to decline. Asset quality of Axis Bank is likely to remain broadly steady.
State Bank of India (SBI), the country’s largest public sector lender, is expected to report a 10% YoY decline in net profit for Q4FY25, while NII may rise 2.6% YoY. Margins are projected to contract marginally on a sequential basis. However, both advances and deposit growth are expected to remain ahead of industry trends. Credit costs are expected to normalize, with marginal improvement in asset quality.
MOFSL’s top stock picks in the banking sector include ICICI Bank, HDFC Bank, SBI, and AU Small Finance Bank, citing their strong fundamentals and earnings visibility.
MOFSL has assigned ‘Buy’ ratings on all four of its top banking picks. The brokerage has set the following target prices:
HDFC Bank | Buy | Target Price: ₹2,100
ICICI Bank | Buy | Target Price: ₹1,600
SBI | Buy | Target Price: ₹925
AU Small Finance Bank | Buy | Target Price: ₹700
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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