New Delhi [India], October 1 (ANI): Key profitability drivers across Indian lenders continue to show strength, supported by robust lending momentum, deposit traction, and stable balance sheets. Net interest margins (NIM) stood sequentially at around 3.2 per cent in 1QFY27 as loan yields and funding costs stabilised. While 2QFY27 faces brief margin pressure from FCNR deposit dynamics, a recent Anand Rathi report expects NIM expansion from 2HFY27 onward on expectations of policy rate hikes.
“NIM remained sequentially at ~3.2% in Q1FY27 with both loan yields and funding cost stabilising. Whilst 2QFY27 could see some NIM pressure due to dynamics around FCNR deposits, NIM outlook is positive for the banks from 2HFY27 onwards given increasing probability of a rising rate cycle,” the report said.
The brokerage firm noted that "Sector credit growth is consistently hovering in the 18-20% range, while record FCNR inflows has aided ~17.3% growth in deposits."
"NIM is bottoming out and NIM outlook is improving due to the high probability of a 25-50bps rate hike. Despite multiple global macro headwinds, asset quality remains benign across segments," the report added.
According to the report, the Indian banking sector is expected to sustain its growth into FY27–28E alongside a provision coverage ratio (PCR) of around 75 per cent.
"We expect the sector's mid-teens growth/RoE trajectory to sustain into FY27-28e with PCR of ~75%," the report said.
The report also mentioned that the sector holds significant resilience against potential market disruptions. High provisioning coverage of approximately 76 per cent and capital adequacy means that sector is better positioned than any time in the past to absorb any unseen asset quality shocks.
On the lending front, year-on-year credit expansion sits within the 18 to 20 per cent band during 2QFY27, up significantly from the 10 to 11 per cent rate recorded a year ago. Growth continues across sectors, steered by industrial credit at approximately 18.2 per cent and gold financing.
Public sector banks (PSBs) are expanding at about 18.4 per cent, outpacing private lenders at around 16.8 per cent and gaining retail market share for the eighth straight quarter.
Deposit growth accelerated from roughly 13.3 per cent in June 2026 to 17.3 per cent in September 2026, driven by foreign currency non-resident (FCNR) inflows. The report projects system-level credit growth to hold at 15 to 16 per cent over the medium term, with state-run banks positioned to match or exceed private peers due to higher liquidity and corporate credit demand.
Asset quality indicators remain stable, with gross slippages at about 0.99 per cent, an improvement of roughly 39 basis points YoY and PSBs reporting metrics below 0.8 per cent.
"Nonetheless, any significant asset quality pressure in prime retail due to AI related job loss and in subprime retail/MSME due to impact of El Niño/high inflation remains key risk to our positive stance," the report warned. (ANI)
NIM outlook positive for banks from 2HFY27 onwards given increasing probability of rising rate cycle: Report
