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Amidst the difficult 2QFY26 with an anticipated NIM decrease, MOFSL names ICICI Bank, HDFC Bank, and SBI as favored stocks. Expecting 2H to improve with the advantages of the CRR cut.
The trough quarter for banks is 2QFY26, when MOFSL predicts that NIMs will bottom out. With the help of the cash reserve ratio’s (CRR) progressive reduction and the lowering of savings and term deposit rates, it predicts that a steady increase in margins will become apparent starting in the second half of the fiscal year. It is anticipated that this strategy will assist in reducing banks’ funding expenses.
The performance of the banking industry is expected to gradually improve after the second quarter of FY26, according to MOFSL, despite low margins, increased credit costs, and slow loan growth. The company predicts that the growth trajectory, supported by the CRR reductions and falling deposit costs, will begin to pick up steam in the third quarter. According to corporate commentary, tension should be lessened, which should ease the strain on borrowing costs and promote a healthy earnings cycle.
Building granular and reliable deposit franchises has become more important as banks deal with increased funding cost challenges. In order to mitigate margin stress and maintain balance sheet resilience, strong liability profiles are seen to be essential.
Given these sectors issues, MOFSL continues to favor SBI, HDFC Bank, and ICICI Bank. Because of their strong balance sheets, favorable provision coverage ratios, and comparatively stronger development potential, these banks are preferred. In the current financial environment, they are anticipated to assist in reducing earnings’ negative risks.
The report emphasizes that starting in the third quarter, the banking industry should see a slow recovery in NIMs. The repricing of deposits and the advantages of the phased CRR cut are anticipated to be the main drivers of the improvement. Some of the difficulties encountered in the first quarters of FY26 should be relieved by this upward trajectory.
According to MOFSL’s study, the next quarter will have a significant impact on how banks’ financial health develops in the near future. The company is nevertheless optimistic that the industry will overcome the present obstacles and come out stronger in the second half of the fiscal year if smart measures are put in place.
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