Indian banks are estimated to report healthy growth in profitability in the second quarter of financial year 2027 (Q2FY27), aided by lower credit costs, steady topline growth, including net interest income (NII) supported by robust advance growth, and fee income. However, net interest margins (NIMs) are likely to come under pressure following the large mobilisation of foreign currency non-resident (bank) FCNR(B) deposits.
The banking system is likely to report a 19.6 per cent year-on-year (Y-o-Y) growth in net profit to ₹1 trillion in Q2FY27, while net revenue is projected to rise 11.1 per cent to ₹3.02 trillion, according to Bloomberg consensus estimates.
Private sector banks are expected to report a 23.2 per cent Y-o-Y increase in profit after tax (PAT) at ₹52,027 crore, outpacing public sector banks, whose net profit is estimated to grow 14.4 per cent to ₹46,861 crore. Net revenue of private lenders is projected to rise 11.1 per cent to ₹1.5 trillion, while public sector banks are expected to post a 10.3 per cent increase to ₹1.45 trillion.
Sequentially, however, the industry’s net profit is estimated to remain almost flat, rising just 0.1 per cent from the June quarter, even as revenue is projected to increase 3.5 per cent. Private banks’ net profit is estimated to rise 1 per cent sequentially, while public sector banks could see a 1.1 per cent decline.
Among private lenders, HDFC Bank is forecasted to report a 6.9 per cent Y-o-Y rise in net profit to ₹19,918 crore, while ICICI Bank’s profit is projected to increase 15.9 per cent to ₹14,323 crore. Axis Bank is expected to post a 40.7 per cent increase in profit to ₹7,160 crore, while Kotak Mahindra Bank’s net profit is estimated to grow 26.3 per cent to ₹4,108 crore. SBI’s net profit is projected to rise 26.3 per cent to ₹21,395 crore, with net revenue estimated to increase 15.4 per cent to ₹67,278 crore.
Small finance banks are expected to record the fastest growth within banking categories, with aggregate net profit projected to rise 92.9 per cent Y-o-Y to ₹1,489 crore and net revenue increasing 29.4 per cent to ₹7,131 crore.
According to Jefferies, banks’ pre-quarter business updates point to healthy loan growth and managed deposit growth, aided by FCNR(B) deposit mobilisation. However, the large mobilisation of these deposits is expected to exert a temporary drag of 4-5 basis points on NIMs in the July-September quarter. Treasury income is also likely to decline sharply.
Among large banks, ICICI Bank and Kotak Mahindra Bank are expected to lead in topline growth, while stable core NIMs should provide comfort for Axis Bank. HDFC Bank could see slower core profit growth due to a sequential decline in margins. While, State Bank of India (SBI) is expected to deliver steady results, with gains from the sale of a stake in SBI Funds Management potentially providing additional room for contingent provisions, the brokerage said.
Among mid-sized lenders, AU Small Finance Bank is expected to sustain strong topline growth and return on equity, while IDFC First Bank, IndusInd Bank and Bandhan Bank are likely to see a turnaround in performance.
Motilal Oswal said NIMs at private banks are likely to be adversely affected by rapid business growth following FCNR(B) inflows and the leverage extended against these deposits. Margins are expected to improve gradually as banks deploy the funds for lending and retire high-cost liabilities. Large private banks could see an adverse impact of 8-20 basis points, it said.
Among mid-sized lenders, RBL Bank is expected to report an expansion in NIMs, aided by the full-quarter impact of the Emirates NBD capital infusion, while IDFC First Bank could see a sharper sequential decline.
Public sector banks’ margins are likely to remain range-bound, given their relatively lower FCNR(B) mobilisation as a proportion of total deposits and their focus on retiring high-cost liabilities, the brokerage said.
JM Financial expects NIMs to decline sequentially across most banks due to large FCNR(B) inflows, the time required to deploy the funds and muted current account and savings account (CASA) growth. It estimates a sequential contraction of 14-18 basis points for ICICI Bank, Axis Bank and Kotak Mahindra Bank, which mobilised relatively large amounts of FCNR(B) deposits, compared with around 5 basis points for HDFC Bank and 3 basis points for SBI. Margins at public sector banks could remain broadly stable. Nevertheless, strong balance sheet growth should support net interest income (NII) growth in Q2FY27, the brokerage said.