According to Kotak Equities report, the first quarter of FY 2027 is expected to be stable for Indian banks. Earnings may remain flat due to pressure on net interest margin and weak non-interest income. The earnings of private banks are expected to increase and that of government banks to decrease.
New Delhi [भारत]July 7 (ANI): Indian banks are expected to post a flat performance in Q1FY27, with earnings largely flat as pressure on net interest margins (NIMs) and weak non-interest income continue to weigh on profits, according to Kotak Institutional Equities.
The brokerage said the banking operating environment has improved compared to the previous quarter. Retail credit performance remains strong, corporate balance sheets are prudently balanced, and government schemes like ECLGS and CGTMSE are supporting MSME lending.
Credit growth and demand situation
Kotak said that despite strong headline credit growth, underlying demand remains weak. “We believe risks are to the downside, particularly given the slower than expected recovery in retail borrowings. Some of the recent demand also appears transitory and reversible,” the report said.
Funding and margin outlook
Kotak expects stronger FCNR deposit mobilization to ease funding pressures across the banking system and reduce deposit costs, with private sector banks likely to benefit more due to their stronger deposit franchises. The report further said that as competition for deposits reduces, the pressure on NIMs may gradually ease.
However, public sector banks are becoming increasingly dependent on expensive term deposits, which may increase funding costs. As a result, Kotak sees “limited opportunities for asset quality-driven investments” at this stage, the report noted.
key financial projections
For Q1FY27, Kotak expects net interest income (NII) to grow by 9 per cent year-on-year, while non-interest income may decline by 20 per cent. The earnings of private sector banks are estimated to increase by 11 percent, while the earnings of public sector banks may see a decline of 15 percent.
“We expect Q1FY27 to be another stable quarter, with any negative surprises, if any, coming from potential NIM contraction,” Kotak said.
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