Banks may clock robust loan growth, liquidity stress in Q3

Banks set for steady recovery led by stable asset quality, healthy margin, strong capital buffers

- Subhana Shaikh

Indian banks are set to report a steady recovery in business momentum in the December quarter (Q3FY26), led by a pickup in credit growth, stable asset quality, largely better margins, and strong capital buffers, according to brokerages.

Analysts have, however, cautioned that stretched liquidity conditions and weak deposit mobilization could emerge as key pressure points as loan growth continues to outpace deposits.

Leading private sector banks including HDFC Bank, ICICI Bank, and YES Bank are set to kickstart the third-quarter earnings season from 17 January.

Nonfood credit for the banking sector grew almost 12% on year as on 15 December, according to latest data from the Reserve Bank of India, driven by a consumption-led recovery and supportive regulatory measures. This was up from around 9% in May.

“Growth momentum has strengthened in the past few months and credit cycle has seen a meaningful pickup after GST cuts...with the full 100 bps CRR (cash reserve ratio) cut now in place and recent supportive regulatory measures, further support to credit expansion expected ahead,” Motilal Oswal Financial Services said in a pre-earnings note.

Pre-quarterly updates from lenders suggest this momentum has sustained into the December quarter, despite deposit growth lagging at a little over 9% on year.