Indian Banks Expect Healthy Q2 Profit Growth Driven by Strong Credit Demand

Indian banks are projected to report healthy net profit growth in the second quarter of financial year 2027, propelled by robust balance sheet expansion and low credit costs. Annual loan growth accelerated to 19.1 percent, while deposit growth reached 15.8 percent, boosted by increased inflows from foreign currency non-resident accounts. Private sector lenders led deposit gathering with an 18.7 percent annual increase, outpacing public sector banks.

However, funding pressures are likely to persist across the banking industry as credit-deposit ratios remain high. Aggregate credit-deposit ratios climbed by roughly 70 basis points quarter over quarter to 86.7 percent. Although systemic liquidity remained comfortable with a surplus of 4.7 trillion Indian rupees at the end of September 2026, shrinking low-cost deposits and delays in deploying foreign currency funds are expected to squeeze net interest margins sequentially.

Looking ahead, operating profit is expected to grow around 8 percent as operating expenses rise by 7 percent, a rate well below asset expansion. Meanwhile, asset quality remains stable across the sector, with collection efficiency holding near 99 percent and stress in unsecured retail and microfinance portfolios continuing to subside. Shares of financial services firm JM Financial Limited (NSE:JMFINANCIL) fell 2.31 percent to 117.8 INR following market activity.