ET Intelligence Group: Nifty 50 banks are expected to report 11.5% year-on-year growth in aggregate net interest income (NII) for the September quarter, according to the average of estimates by ETIG and four broking firms. However, growth in pre-provision operating profit and net profit will be slower, at around 10%, given the pressure on treasury income due to hardened bond yields. Credit costs are expected to stay benign during the quarter amid stable asset quality.
The quarter was marked by strong capital inflows for the banking system through the RBI's 2026 Foreign Currency Non-Resident-Bank (FCNR-B) deposit swap scheme, which collected over $127 billion, exceeding expectations. This is expected to support deposit growth, which has not kept pace with the pick-up in credit demand for the past several quarters. On the flip side, it is likely to affect the CASA (current account savings account) ratio and net interest margins (NIMs).
"For large private banks, these inflows may dilute reported CASA ratios and create a short-term drag as funding raised at attractive offshore spreads takes time to be deployed," said Kotak Securities in a report. The broker estimates a 10-15 basis point quarterly impact from FCNR deposits on NIMs.
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"Provisional business updates for 30 banks show loan growth accelerating sharply to 19.1% year-on-year and 6.6% sequentially, and deposit growth to 15.8% year-on-year and 5.8% sequentially, aided meaningfully by the FCNR-B mobilisation drive," noted JM Financial Institutional Securities in a preview report. The broking firm expects net profit of the banks under its coverage to grow by 12% year-on-year.
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"NIMs may remain compressed in the September quarter but should gradually recover in the second half as banks retire high-cost liabilities and deploy liquidity into loans," said Global Financial Services in a preview report, adding that banks with high floating-rate loans may benefit from the recent rate hike. For investors, management commentary by banks on FCNR-related deployment, trends in fee income and the impact of the recent rate increase will be crucial. "Key metrics to monitor are deployment trajectory and yields on FCNR deposits, impact of rate hike, upcoming ECL transition and any stress in SME and unsecured loans," stated JM Financial in the report. Among the top private sector banks, Axis Bank is expected to report the highest YoY net profit growth of 41% for the September quarter, followed by Kotak Mahindra Bank with a 29% increase. For SBI, profit is likely to grow by 11.2%. All three banks expected to report double-digit NII growth.
For non-banking financial companies, performance is expected to remain strong, driven by growth in disbursements and stable asset quality. "Resilient retail demand and a gradual recovery in loan against property should support diversified financiers," said JM Financial in a preview report. The broker expects 20% YoY growth in aggregate assets under management.
