Banking Sector Outlook for Q1 FY26

Market research firms JM Financial and InCred Equities anticipate a weak performance from the banking sector in Q1 FY26, with lower profits, margins, and loan growth. Credit expansion has slowed, with industrial credit growth at 4.8% YoY in May—well below last year’s 8.9%. Overall banking credit growth is expected to be around 10.8% YoY, down from 12.6% in the previous quarter. Margin pressures are intensifying due to RBI rate cuts in April and June, which are expected to reduce Net Interest Income (NII) growth to just 2% YoY. Net Interest Margins (NIMs) could contract by 10–20 bps in Q1FY26 and remain under pressure into Q2 before easing in H2FY26. On asset quality, while large banks may see some relief in unsecured loans, credit costs are expected to stay elevated. Major private lenders like ICICI Bank and Axis Bank are better positioned to handle these challenges compared to smaller peers such as IndusInd and Bandhan Bank. Looks like RBI's actions would bear fruit in H2FY26, any dip in the next few months would a good buying range for near term.