Bank Profits May Rise 25% in Q2 FY27, Margins to Recover Gradually in Second Half
- IBEF
- October 12, 2026
According to a report by Emkay Research, Indian banks could report a 25.4% year-on-year rise in net profit in the July-September quarter, even as higher deposits raised through foreign currency accounts are expected to put pressure on lending margins. The brokerage expects profitability to improve on the back of healthy loan growth, higher income from core banking operations and lower provisions for potential loan losses, partly offset by lower treasury gains. Emkay described the September quarter as a “one-off quarter”, with significant mobilization of Foreign Currency Non-Resident (FCNR-B) deposits contributing to faster credit and deposit growth. System-wide credit growth stood at 18.1% year-on-year as of 15th September, while deposit growth accelerated to 17.3% from 12% in June.
The report said the additional funds would initially be used to retire high-cost liabilities, partly invested in other assets and gradually deployed as loans, with banks taking around two quarters to fully absorb the additional liquidity. It said net interest margins may remain compressed in Q2 due to the FCNR-B led inflow but should gradually recover in the second half of FY27, supported by repayment of expensive liabilities, deployment of excess funds into loans and benefits from the recent interest rate hike for banks with a larger share of floating-rate loans. The report also noted that the impact of fresh foreign currency deposits on margins is expected to ease gradually as the overall banking system’s growth moderates with the normalization of FCNR-B funding.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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