Banks Q4 Preview: Rate Cuts To Keep Margins In Check, Says Motilal Oswal — HDFC Bank, SBI Among Top Picks
With repo rate cuts already underway, banks' lending yields have begun to decline, while borrowing costs are expected to remain high in H1 FY26, adds Motilal Oswal.
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(Photo: Radhakisan Raswe/ Source: NDTV Profit).
Among large private banks under the brokerages' coverage, HDFC Bank’s growth is estimated to be at 5.5% YoY, ICICI at 9.2% YoY, Axis at 5.8% YoY, Kotak Mahindra Bank at 8.0% YoY, and Federal at 9.4% YoY. For IndusInd Bank, NII is expected to decline sharply by 33.7% YoY as bank factors in the impact from accounting discrepancy in prior period.
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Motilal Oswal Report
Credit growth outlook remains modest: Systemic credit growth slowed to ~11.1% in Q4 FY25 from 16.5% a year ago, amid slower demand in certain secured products, stress in the unsecured segment, and a high credit-deposit ratio across the system. With an incremental CD ratio at 87% and an outstanding CD ratio at elevated 80.5%, we expect credit growth to remain tepid at 12% in FY26E.
Deposit growth at 10.2% in Mar’25; CASA growth remains a challenge: Deposit growth for the system has been at 10.2% YoY while FY25YTD growth stands closer at 9.9% versus credit growth of 10.3%. With CASA accretion being a challenge and depositors preferring term deposits with higher rates, these factors could push CoF to the higher side and thus could hurt NIMs. With inflation being lower, we foresee two-three rounds of rate cuts in FY26, thus impacting yields especially in H1 FY26.
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