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Improvement in credit growth to aid earnings in Q3FY26

ICICIdirect Research 09 Jan 2026 DISCLAIMER

Indian banking industry witnessed steady momentum in credit growth at ~11.4% YoY in Nov 25, led by sustained momentum in MSMEs (25% YoY) and retail segment, while a pickup in large corporate (4.6% YoY) remains awaited.
NII seems to bottom out as sustained credit growth is seen to offset volatility in margins. Margins are expected to remain in +/- 5 bps range in Q3FY26 with continued easing of deposit cost. While transmission of recent 25 bps cut in repo rate will induce pressure on yields, gradual easing of cost of funds, bottoming of growth in unsecured retail segment (MFI, PL and credit cards) seems to aid support to margins. Asset quality is expected to remain steady, while tight control on operations is anticipated in Q3FY26.
Quarterly update announced by banks clearly indicate growth being favored within growth vs margins tradeoff. Overall, banks delivered healthy and broad-based business momentum in Q3FY26, with most PSU and private sector banks reporting double-digit YoY business growth.
PSU banks such as Bank of Baroda, Indian Bank and Bank of India continued to gain traction, supported by sustained growth in RAM and improving deposit mobilization.
Large private banks reported healthy sequential momentum in both advances and deposits, with CD ratio inching up across lenders.
Mid-sized banks showed mixed trends, with CSB Bank, Karur Vysya Bank and South Indian Bank delivering strong growth, while IndusInd Bank continued to see balance-sheet contraction.

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