- Loan growth, demand revival to aid lenders' December-quarter results
- Demand recovery to aid non-bank lenders, gold financiers to lead growth
- Private banks expected to outperform state-owned lenders in profit growth
- Life insurers to benefit from tax cuts and lower interest rates
- Credit momentum gets boost from festive spending and GST cuts
Jan 12 (Reuters) - Indian banks are expected to post better annual and sequential earnings in the December quarter, supported by improving loan growth and stable asset quality, though pressure on deposit growth is likely to cap upside, brokerages said.
Analysts expect private sector banks to post average profit after tax growth of about 3.5%–5% year-on-year for October-December, higher than the 2% rise in the year-ago period. State-owned lenders are seen registering a more modest 2.5%–3% rise.
Credit momentum, the pace of loan growth, has strengthened in recent months on festive-season spending and Goods and Services Tax (GST) cuts, signalling a rebound in credit appetite in the world's fastest-growing major economy. Major lenders posted double-digit loan growth in the December quarter.
Net interest income (NII) is expected to improve sequentially as loan growth picks up.
"NII is likely to see a sequential uptick in the December quarter, driven by better loan growth," said Vishal Narnolia, assistant vice-president, research, at ICICI Securities.
Motilal Oswal estimates NII growth of around 6% year-on-year and 4% quarter-on-quarter in the third quarter.
Net interest margins (NIMs) are expected to remain flat, as the benefits of lower term deposit rates and recent cash reserve ratio (CRR) cuts offset the lagged impact of cumulative rate cuts.
The Reserve Bank of India has cut the repo rate by 125 basis points since February 2025. Asset quality is expected to remain stable, with easing stress in unsecured retail and microfinance portfolios, while provisions are expected to fall sequentially.
Among non-bank lenders, a recovery in demand across select segments and stable asset quality should underpin performance in the December quarter.
Gold financiers, such as Manappuram Finance and Muthoot Finance, are expected to post about 39% growth in assets under management on strong gold loan demand, while vehicle financiers should benefit from improved disbursement momentum amid pent-up demand, tax cuts and festive tailwinds.
By contrast, housing finance companies may report weaker disbursements due to intense competition from banks.
Outside lending, exchanges and brokers are expected to post robust revenue growth on a recovery in derivatives volumes and a rise in commodity trading activity.
Life insurers are also seen reporting strong earnings, supported by tax cuts that boost protection demand, and lower interest rates.
Looking ahead, Narnolia said the March quarter should benefit from deposit repricing and a pickup in unsecured retail segments such as microfinance and credit cards, though lending yields will remain under pressure after the RBI's latest rate cut.
Reporting by Nishit Navin and Bharath Rajeswaran in Bengaluru; Editing by Rashmi Aich
Source: Reuters