The brokerage sees a supportive earnings outlook, with margins holding steady and loan quality remaining sound. Its analysts, Pranav Gundlapalle, Ishan Mittal and Anirudh Gupta, said most deposit repricing was complete, while any interest-rate increases could give net interest margins an additional lift.

Lending picked up during Q1FY27 across industry, services and some retail categories. System-wide credit growth reached 20% from a year earlier, or 18% after adjusting for reporting changes. Deposits grew 16% in July 2026, leaving the system’s loan-to-deposit ratio at 82%, close to its highest levels in a decade.

Private banks reduced their loan-growth shortfall against public sector banks to one percentage point. Their deposit-growth lead widened to four percentage points. Public sector banks nevertheless delivered net interest income growth four percentage points ahead of private peers, helped by better margins and expansion in higher-yielding retail lending.

Bernstein warned that public banks’ heavier dependence on borrowings could hurt their relative margin performance. More broadly, inflation, a larger trade deficit and geopolitical uncertainty remain risks. Strong services exports, capital inflows and RBI foreign-exchange measures have supported external balances and banking liquidity, while sector profitability remains near decade-high levels.