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India’s banks are expected to deliver a mixed profitability performance in the second quarter of the current fiscal year, according to analysts and brokerage reports.

An analysis of the earnings estimates for the top five banks by gross advances — State Bank of India (SBI), HDFC Bank, ICICI Bank, Bank of Baroda and Axis Bank — shows that profit after tax (PAT) is expected to grow between 7 per cent and 17 per cent year-on-year in the quarter ended September 2027.

A report by Kotak Institutional Equities estimated a conservative PAT growth of 7.2 per cent year-on-year and 3.25 per cent quarter-on-quarter.

“We expect private banks to report around 20 per cent year-on-year earnings growth, aided by a lower base in select banks such as IndusInd Bank and Axis Bank, while PSU banks could see flat-to-declining earnings growth, factoring in the recent disclosure from Bank of Baroda,“ Kotak said in its report.

Analysts at Systematix forecast that the combined PAT growth of the five banks will come in at slightly over 13 per cent year-on-year, while Motilal Oswal Financial Services expects the quarter to be stronger, with PAT growth of about 17 per cent.

Brokerages also estimate PAT to grow between 3.3 per cent and 13.3 per cent on a sequential basis.

“Margins may appear lower because of FCNR(B)-related impacts. If that effect is excluded, margins should remain largely stable on a quarter-on-quarter basis,“ said Piran Engineer, Senior Research Analyst for the banking sector at CLSA. “However, on a year-on-year basis, margins are likely to decline because the base was higher in the corresponding quarter last year. As a result, net interest income (NII) growth for the sector is expected to be in the low teens, while earnings growth could be in the mid-teens,“ he added.

All three brokerages expect that while overall PAT growth will remain stable, net interest margins (NIMs) will face pressure due to the liquidity generated by FCNR(B) deposits. “NIMs are expected to decline sequentially across most banks, with ICICI Bank, Kotak Mahindra Bank and Karur Vysya Bank likely to witness more than a 10 basis point (bps) fall quarter-on-quarter. Bank of India, Axis Bank, HDFC Bank, IndusInd Bank and Bank of Baroda are expected to report NIM contraction in the range of 5-10 bps,“ analysts at Systematix said.

They attributed the pressure largely to the higher costs associated with FCNR(B) deposits and the leverage provided under the scheme.

FCNR(B) impact on NIMs to vary across banks

Across large-, mid- and small-cap banks, PAT growth is expected to remain within a broad range, depending on the extent of FCNR(B) mobilisation, analysts said.

There is also likely to be a divergence between public sector and private sector banks, with government-owned lenders expected to see a smaller FCNR(B) related impact on NIMs than their private-sector peers, Engineer said.

The excess liquidity generated through FCNR(B) deposits is expected to be withdrawn by next quarter, leaving banks with limited surplus funds available for incremental lending, according to another analyst at a foreign brokerage.

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