The July-September quarter of 2026 is shaping up to be a stress test for treasury books, yet the sector’s balance sheets are thick enough to take the hit. Digant Haria, founder of GreenEdge Wealth Services, argues that the 17-18% credit growth currently driving public sector lenders like Bank of India and Union Bank of India provides a massive cushion against potential mark-to-market losses. This velocity in lending is a stark contrast to the 12-13% growth rates seen in prior cycles, creating what Haria calls "so much more operating leverage" that can flow directly into profit and loss statements. The math is simple: higher volume absorbs the margin compression that rising yields might otherwise inflict.
Private sector giants aren't slouching either. HDFC Bank is posting strong deposit growth, while NBFCs like Bajaj Finance and L&T Finance are showing robust traction. Equitas Small Finance Bank and Ujjivan Small Finance Bank are also performing well. But the real story is the shift in momentum for PSBs. Seeing them "flying around with 17-18% growth" is a first for a while, suggesting a structural shift in how these legacy institutions are capturing market share. This isn't just about volume; it's about the quality of that growth relative to funding costs.
The macro backdrop is forcing the Reserve Bank of India's hand. Haria expects a token rate hike of 25 to 50 basis points on October 7, not because domestic inflation is out of control, but because global bond deals are moving in a way that demands a response. "We don't need that as such if we just look at India," Haria noted, but the external pressure is real. This move would benefit banks, as over 50% of their portfolios are linked to the external benchmark lending rate (EBLR). For NBFCs, the impact depends on the central bank's tone, but for banks, it’s a margin booster.
The main headwind remains foreign institutional investor (FII) selling, which is currently weighing on sentiment. However, Haria sees nothing negative in the September quarter for the banking sector. With margins likely at rock bottom for lenders like Axis Bank in the previous quarter, the baseline for improvement is low. The RBI’s October decision will define the trajectory, but for now, the credit growth engine is running hot enough to keep the sector resilient despite yield curve volatility.