Q4FY26 earnings: Banks shine as West Asia risks rise

Equity markets juggle earnings and geopolitics

Indian equity markets entered the Q4FY26 results season with a split narrative. On one side, large private banks delivered steady profit growth and signalled improved asset quality. On the other, the breakdown of US-Iran ceasefire talks revived hostilities in West Asia, pushing crude prices sharply higher and reintroducing macro uncertainty.

The combination matters because bank earnings can support near-term market confidence, but oil-linked inflation and liquidity conditions can quickly shift the outlook for credit, margins, and delinquencies. Investors are also tracking sector-specific stress in IT, where valuations and revenues remain under pressure amid AI-led disruption and weak demand.

Q4FY26 banking results provide a domestic positive

Two of India’s biggest private lenders set the tone early. HDFC Bank reported profit growth supported by stable margins and lower gross NPAs. ICICI Bank posted higher profit as credit costs fell sharply, reinforcing the view that the system’s benign asset-quality cycle has not yet turned.

Analysts, however, continue to flag that the operating environment is tightening. Liquidity is described as tight, deposit competition remains intense, and the pass-through of the repo rate cut into lending yields can compress margins if funding costs do not fall in tandem.

HDFC Bank: profit up, asset quality improves

HDFC Bank reported an 8.04% rise in consolidated net profit to ₹20,350.76 crore for the March quarter. The bank reported net interest margins (NIMs) of 3.38% and a gross NPA ratio of 1.15%.

Even as the headline numbers were supportive, HDFC Bank also flagged near-term risks for small-business borrowers linked to the West Asia conflict. That risk framing is important because stress, if it emerges, tends to show first in cash-flow sensitive segments.

ICICI Bank: profit up as provisions drop

ICICI Bank posted a 9.28% rise in consolidated net profit to ₹14,755 crore. The bank reduced loan loss provisions by nearly 90%, which supported profitability and was read as a sign of improved asset quality and potential normalisation of credit conditions.

Lower provisions can lift near-term earnings, but investors also look for confirmation that the cycle is stable across segments such as unsecured retail and MSMEs, where stress can surface with a lag.

Valuations and broker positioning across large banks

Alongside results, valuations highlight how the market is pricing growth and risk. Peer multiples cited include SBI at about 11.59 times earnings, HDFC Bank around 16.44, ICICI Bank around 16.31, and Kotak Mahindra Bank at about 32.23.

Nuvama’s stance in the material provided remains positive on HDFC Bank, ICICI Bank, SBI, and Axis Bank, while advising caution on Kotak Mahindra Bank.

Margin pressure: funding costs, deposit competition, liquidity

Fitch Ratings expects margin pressure from tighter liquidity and higher funding costs, potentially lowering NIMs. Deposit growth has quickened, but the mix is described as more reliant on expensive wholesale funding, widening the credit-deposit gap and testing future profitability.

Motilal Oswal Financial Services pointed to the 25 basis point repo rate cut in December 2025 being reflected in lending yield transmission in Q4, while noting that funding costs remain elevated and many banks have not reduced term deposit or savings account rates.

Ambit Capital’s framework also links a prolonged Iran conflict to tighter liquidity and slower momentum, projecting FY27E systemic credit growth at 11-13% under a base case (assuming tensions ease by April 2026), 13-15% in a bull case, and 10-12% in a prolonged conflict scenario.

West Asia conflict: crude shock and operating stress points

The renewed hostilities in West Asia have driven oil above $100 per barrel, raising concerns on inflation, India’s external balances, and policy trade-offs. Separately, sector commentary cited crude rising from $16 per barrel in January to around $102 per barrel in March 2026.

On the ground, the article text also highlights supply disruptions, including non-availability of commercial LPG, affecting small operators such as restaurants and hotels. Industries dependent on gas and crude-linked inputs, and firms exposed to West Asia, have also seen production disruption over the past month.

Asset quality watch: MSME and unsecured retail

CareEdge Ratings flagged that escalating geopolitical tensions could push crude higher, raise inflation, and weaken repayment capacity, leading to a gradual rise in delinquencies. It highlighted potential stress in MSME and unsecured retail segments, even as system-level stress is near historic lows.

The system’s gross NPA ratio was cited at around 1.9% by December 2025, down from a peak of over 11% in FY18. The report expects the gross NPA ratio to remain broadly stable, likely in the 1.9-2% range in FY27, while warning that risks could build with a lag if tensions remain elevated.

Public sector banks were described as better placed to absorb stress, supported by provision coverage ratios of 75-80% and lower incremental slippages. Private banks, despite lower overall NPAs, may face relatively higher stress due to loan mix and higher exposure to unsecured segments.

Governance and regulatory signals also in focus

HDFC Bank’s non-executive chairman Atanu Chakraborty resigned unexpectedly, with the article citing governance and ethics concerns, bringing corporate oversight into the discussion alongside financial performance.

Separately, a new RBI rule limiting net overnight foreign exchange positions to $100 million could require some banks to reduce currency holdings. The potential mark-to-market impact was estimated at roughly ₹3,000-4,000 crore, though the text notes the effect is expected to be minor relative to overall profitability, with banks reporting record quarterly net profits exceeding ₹1 lakh crore.

IT sector pressure adds a second drag on sentiment

Beyond banks, the Indian IT sector remains under strain. The Nifty IT index was cited as down around 25% year-to-date, reflecting AI-related disruption to traditional services models and softer demand amid global uncertainty.

The next catalyst for the market narrative includes earnings from HCL Technologies and Infosys, with investors watching for AI integration strategy and revenue guidance.

What markets are likely to track next

Near-term market sentiment is likely to remain sensitive to the US-Iran conflict and its effect on crude prices and inflation expectations. For banks, investors are likely to watch how funding costs, liquidity conditions, and deposit pricing shape NIMs, and whether early stress indicators appear in MSME and unsecured retail.

Moody’s noted that a prolonged conflict and elevated oil prices could have repercussions for the economy and, in turn, banks. It also projected India’s GDP growth at 6.4% in FY27, excluding conflict-related impacts, citing structural reforms such as GST rationalisation and income tax cuts announced last year as supportive for consumption.

The immediate market setup, then, remains a balance of supportive domestic results and global risk variables that can change quickly.