Did leading banking names deliver in Q1? Here is what we know so far

Banking sector results were seen with high expectations, as IT, FMCG companies posted dismal performance across the board. However, banking results till now have shown a similar trend, barring a few exceptions. The bellwether banks from the sector, like HDFC Bank, Axis Bank and Kotak Mahindra Bank, were major misses from the sector.

Here’s how private and public sector banks performed in Q1FY26

Operational topline

The overall net-interest income growth for the banks declined 2% on a median basis. Among the major banks that reported their Q1FY26 results, ICICI Bank, Bank of Baroda and IDFC First Bank reported YoY growth in net interest income at 2%, 4% and 1% respectively, for the quarter. On the other hand, HDFC Bank, Axis Bank, Kotak Mahindra Bank, AU Small Finance Bank and Canara Bank reported a decline in net interest income for the quarter in the range of 2% to 5%. At an aggregate level, the core operational income for the banks remained subdued, which indicates increased pressure for the banks. In addition, the rate cuts are expected to dent the interest income growth further in the coming quarters.

Core operating margins

Consequent to the falling net-interest income, the net-interest margins for the quarter remained subdued across the board. Big players like HDFC Bank, Axis Bank, IDFC First and Kotak Mahindra Bank posted a sub 4% margins with a 10 to 50 bps drop in margins for the quarter. Meanwhile, AU Small Finance Bank, ICICI Bank, IDFC First Bank and Kotak Mahindra Bank posted margins above 4%, with AU Small Finance Bank and IDFC First Bank posting 5.9% and 5.7% margins for the quarter.

Overall, the margins remain under pressure due drop in the core interest income. The credit costs remained elevated despite the rate cut trajectory. Going forward, the rate cut trajectory will show an impact on the cost side, i.e on the deposits side. The effect of which is expected to be visible in Q3 and Q4 of FY26. Consequently, by then, the margins are expected to stabilise as indicated by the management of major banks in their earnings call.

Bottom-line

On the bottom line front, the Axis Bank, Bank of Baroda, Canara Bank and Kotak Mahindra Bank reported a drop in the net profits for the quarter in the range of 10% to 20% YoY. On the other hand, the HDFC Bank, ICICI Bank and AU Small Finance Bank showed positive growth in the bottom line. Interestingly, all the banks except for AU Small Finance Bank reported a sharp jump in provisions for contingencies, which led to a mid-single-digit jump in the net profit. Experts believe banks see some pain in the retail portfolio or unsecured portfolio for which banks expect to create provisions.

Asset quality

In terms of asset quality, all the banks report a slight deterioration in the quality of assets as GNPA and NNPAs expanded by 10 to 20 bps. On a yearly basis, PSU Banks continued to hold GNPA above 2% while private sector banks continued to maintain the GNPA below 2%. Due sharp rise in provisions, the net NPAs remained under check and below 1% across the board, which is an encouraging sign from the Q1 results.

Broadly, all the banks reported a miss on major parameters and metrics for Q1 FY26, while ICICI Bank showed better performance and commentary amongst all. HDFC Bank continued to face merger pressure with an adverse loan-to-deposit ratio. While AU Small Finance Bank is expected to remain focused on its SME and micro portfolio. The relaxation of regulatory measures on the SME and micro lending portfolio will help in better margins going forward.