Athira Sethu
Kochi, 7 Jan 2026
Indian banks are expected to show a clear recovery in the third quarter of FY26, according to a preview by JM Financial. After a weak first half of the year, the sector is likely to benefit from stronger loan growth, easing pressure on funding costs, and improving asset quality. Better collection trends and moderating stress in unsecured loans are also expected to support overall performance during the quarter.
Overall Banking Sector Snapshot Q3 FY26 (JM Financial Universe)
Metric Q3 FY26 Estimate Q2 FY26 Credit Growth YoY 11.8% 11.1% Deposit Growth YoY 10.2% 10.4% Credit Deposit Ratio ~85% ~84% Net Interest Margin 3.1% 3.2% Credit Cost 0.6% 0.6%
Loan Growth Outlook by Bank Category (QoQ)
Bank Category Expected Loan Growth Large Banks 3.5% to 4.5% Mid-sized Banks 5% to 7.5% Small Finance Banks 5% to 7.5%
Deposit Growth Trends (YoY)
Bank Type Deposit Growth Public Sector Banks 9.4% Private Sector Banks 10.9% System Average ~10.2%
Net Interest Margin Trend
Segment Q3 FY26 NIM Trend Large Banks Largely stable Mid-sized Banks Slight improvement SFBs Modest improvement
Asset Quality and Credit Costs
Metric Q3 FY26 Estimate System Credit Cost 0.6% Large Banks Credit Cost ~0.5% Trend in Slippages Declining Unsecured Loan Stress Moderating
Credit Cost Improvement in Select SFBs
Bank Q2 FY26 Q3 FY26 Estimate AU Small Finance Bank 1.7% 1.4% Ujjivan SFB 2.8% 1.9% Equitas SFB 2.3% 2.0%
Profitability Indicators (JM Financial Universe)
Metric Q3 FY26 Estimate Q2 FY26 Net Interest Income Growth YoY 4.7% 2.9% PPoP Growth YoY 12.8% — PAT Growth YoY 0.3% Negative Return on Assets 1.3% — Return on Equity 12.5% —
Return on Assets by Bank Type
Bank Expected RoA HDFC Bank 1.8% ICICI Bank 2.2% State Bank of India 0.9% AU Small Finance Bank 1.5% Ujjivan SFB 1.4%
Key Business Monitorables for Q3
Area What to Watch Credit Growth Sustainability of loan momentum Deposits Retail mobilisation and repricing Margins Impact of CRR cuts and rate transmission Asset Quality Collection efficiency and slippages Liquidity CD ratio and funding conditions
