Public sector banks emerged as the strongest performers in the banking and financial services space during the December quarter, according to Kaitav Shah, Lead BFSI Analyst at Anand Rathi Institutional Equities. Speaking to ET Now, Shah noted that PSU banks outpaced system-level credit growth in Q3, aided by favourable seasonality and a relatively stable macro environment. However, he cautioned that year-on-year growth for PSU banks has been better than the system, adding that whenever PSU banks grow faster, asset quality needs close monitoring over time.
Commenting on HDFC Bank's Q3 performance, Shah said the results were largely in line with expectations. The bank has guided for growth in FY26 that is broadly in line with the overall banking system, with aspirations to outgrow the system thereafter. He highlighted that liquidity conditions have improved significantly compared to last year, supported by a CRR cut and liquidity infusion under the new RBI leadership. Shah warned that with improved liquidity, credit-deposit ratios are getting more stretched, which could be an area where HDFC Bank may not fully deliver on its near-term guidance.
According to Shah's analysis for Anand Rathi Institutional Equities, smaller private sector banks have lagged system growth, which he said was expected given ongoing transformations. Banks such as Yes Bank and RBL Bank, which recently raised capital and saw management changes, are likely to take time before growth momentum picks up. Shah explained that capital infusion and changes in promoter or management structure typically take six months to a year to translate into stronger business momentum.
Among small finance banks (SFBs), Shah reported that growth has rebounded in pockets, particularly those with exposure to microfinance. He cited improved discipline at the ground level, including the implementation of the three-lender policy, which has helped stronger borrowers access higher loan amounts. Shah emphasized that this is not a one-quarter sharp recovery but a gradual rebound, with well-placed SFBs benefiting from the trend.
On the microfinance segment, Shah noted early signs of easing stress following regulatory interventions. Since the RBI adjusted risk weights for microfinance loans earlier this year, asset quality trends have gradually improved. He observed that better-diversified NBFCs have managed this phase well, with disbursements picking up for some players and regional issues such as those seen in Karnataka starting to stabilise. Regarding Bajaj Finance, Shah said Q3 numbers were in line with management guidance but slightly softer due to a slowdown in MSME lending and housing finance, with similar moderation visible in other fast-growing NBFCs such as Cholamandalam Investment and Finance.