Indian Banks Positioned for NIM Revival Post-Q3 FY26

According to a report by Motilal Oswal, India's banking sector can expect an improvement in net interest margins (NIMs) following the third quarter of the 2026 financial year. Although opinions are mixed regarding the duration of the current softness, there's consensus that NIMs of larger, efficient banks will stabilize by then.

The report emphasized the importance of NIMs as a key performance metric. With the ongoing rate cut cycle causing margin contractions, the timing and impact of these pressures remain under scrutiny. Banks with higher floating-rate loan books, especially those linked to the repo rate, are feeling immediate yield pressure, although deposit costs should gradually decrease.

The analysis suggests the banking sector may reach an earnings inflection point, with anticipated growth resuming from the second half of FY26 onward as margin strains lessen. Despite projected earnings weakness in early FY26 due to lackluster NIMs, a gradual NIM and loan growth recovery, alongside stable asset quality, could enhance performance. Analysts favor banks with robust deposit systems and prudent risk practices, expecting that improved credit costs, asset quality, and treasury outcomes will aid RoA maintenance amidst ongoing economic challenges. (ANI)

(With inputs from agencies.)