Indian banks see profit growth as funding pressures build
after close2 sources ↓machine-written, see hownot a recommendation
- growth accelerated
- 19.1% YoY
- during the quarter
- 15.8% YoY
- basis points
- 86.7%
- which expected
- 11% YoY earnings growth
- for the sector
- 11% YoY NII growth
Indian banks are expected to report healthy Q2FY27 profit growth, supported by stronger loan expansion, but funding pressures are building as deposits lag credit. A JM Financial report cited by Asianet Newsable said loan growth accelerated to 19.1% YoY, while deposit growth reached 15.8% YoY during the quarter. The report also linked the improvement in deposits to increased mobilisation of FCNR(B) deposits. 💼
The faster expansion in credit pushed the sector’s aggregate credit-deposit ratio up by around 70 basis points to 86.7%. Quarterly deposit growth stood at 5.8% in Q2FY27. This indicates that banks are continuing to fund robust loan demand while relying on a narrower deposit cushion, even though overall system liquidity remains comfortable.
FCNR(B) inflows remain a key variable for funding conditions and margins. The new report warned that tapering inflows could keep pressure on deposit mobilisation and funding costs. This adds detail to the earlier outlook from Kotak Institutional Equities, which expected 11% YoY earnings growth and 11% YoY NII growth for the sector, with FCNR deposits potentially weighing on net interest margins.
Private sector banks were previously expected to lead the quarter with around 20% earnings growth, while public sector banks were expected to report broadly flat earnings. Stronger loan growth supports interest income, but any rise in funding costs or weaker deposit inflows could limit the benefit to margins and non-interest income.
Key points:
• Loan growth accelerated to 19.1% YoY and deposit growth to 15.8% YoY in Q2FY27.
• The aggregate credit-deposit ratio rose around 70 basis points to 86.7%.
• FCNR(B) deposits supported mobilisation, but tapering inflows remain a funding risk.
• Kotak expected 11% sector earnings growth, 11% NII growth and 20% growth for private banks.
Investors will now focus on Q2FY27 results, deposit-cost trends, credit-deposit ratios and management commentary on FCNR(B) inflows. These indicators will show whether strong loan demand is translating into earnings growth without a material squeeze on margins. 🏦
Source: news.google.com, 06 Oct 2026; Asianet Newsable, 11 Oct 2026
Not investment advice. For informational purposes only.