Indian Banks Poised for Stronger Q2 Earnings on Credit Growth: Systematix

Indian banks are poised to see a pickup in earnings momentum during the second quarter of FY27, supported by strong credit growth and stable or lower provisioning costs, according to a Systematix Research report. The brokerage expects earnings growth across its banking coverage universe to accelerate to 14.9 per cent year-on-year in Q2 FY27, excluding IndusInd Bank, with advances growth and controlled credit costs providing key support to profitability.

However, the banking sector faces headwinds on margins. Elevated liquidity and a changing deposit mix are expected to keep pressure on net interest margins (NIMs), with average NIMs for the coverage universe expected to decline by around 7 basis points sequentially. The increase in the cost of deposits, coupled with pressure on yields on advances, is expected to weigh on margins across several banks. Systematix Research noted that margins will remain under pressure due to increased liquidity, with NIMs expected to remain lower or broadly stable sequentially during the quarter, largely due to higher liquidity and a greater share of term deposits driven by strong FCNR(B) flows.

The underlying credit environment remains robust, providing support to earnings despite margin pressures. Banking system advances grew 19 per cent year-on-year in August 2026, compared with 11 per cent a year earlier. Services credit expanded 24.3 per cent, while industrial credit growth accelerated to 18.2 per cent, demonstrating broad-based strength across lending segments.