Indian banks’ 2QFY27 earnings seen gaining momentum on strong credit growth: Systematix

Indian banks are projected to experience a resurgence in earnings momentum in the second quarter of FY27.
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According to a Systematix Research report, Indian banks are expected to witness stronger earnings momentum in Q2 FY27. This growth will be driven by robust credit expansion and stable or declining provisioning costs, although excessive liquidity and a shifting deposit mix are anticipated to continue stressing net interest margins (NIMs).

The brokerage forecasts that earnings growth within its banking coverage universe will pick up to 14.9 per cent annually in Q2 FY27, barring IndusInd Bank, thanks to loan growth and managed credit costs. “Margins to remain under pressure due to increased liquidity,” Systematix Research noted, indicating that NIMs across its coverage group are likely to stay flat or decline slightly sequentially. Average NIMs are projected to drop by roughly 7 basis points, primarily because of heightened liquidity and an increased portion of term deposits stemming from substantial FCNR(B) inflows.

Higher deposit costs, combined with reduced yields on loans, are expected to strain margins for multiple banks. Meanwhile, the core credit environment remains healthy. Banking sector advances expanded 19 per cent year-on-year in August 2026, up from 11 per cent a year prior.

Credit for the services sector rose 24.3 per cent, while industrial lending grew at an accelerated pace of 18.2 per cent. Deposits also gained momentum, with total system deposits increasing 17.3 per cent year-on-year and 6.9 per cent on a sequential basis as of September 15, 2026, supported by robust FCNR(B) inflows. Consequently, the credit-deposit ratio eased to roughly 80.8 per cent, down from 83.4 per cent in June.

Regarding asset quality, the broker anticipates favorable conditions. The report stated, “Asset quality to remain contained,” projecting that slippages would stay flat or decrease sequentially for most lenders, with credit costs staying consistent. This stability offers a significant buffer to profitability even amid margin headwinds. Most banks are forecast to show year-on-year profit after tax growth. Additionally, fee income is expected to bolster other income, though treasury income might slow down as elevated government bond yields dampen trading profits.

The report concluded that vigorous loan growth, strengthening deposits, and controlled asset quality create a positive earnings environment for the sector, though NIM compression remains the primary short-term concern for investors to watch.

Published on October 6, 2026