Banks are likely to post a double-digit year-on-year (y-o-y) growth in both credit and deposits in Q1FY27, analysts say. However, large sized lenders–especially private ones–may report a decline in their net interest margin (NIM).
According to brokerage Motilal Oswal, banks’ credit growth accelerated to 17.7% as of June 15, driven by: A) higher working capital loan demand amid rising input costs, B) the regulatory shift in focus from credit-deposit ratio to the liquidity coverage ratio and net stable funding ratio, and C) a surge in corporate borrowings following the rise in bond yields during Q1FY27. The brokerage expects credit growth to likely moderate to around 14% by FY27 end.
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“System-wide deposit growth remained healthy at 12% YoY, aided by strong credit expansion and an increase in the money multiplier. However, deposit growth continues to trail loan growth, resulting in greater reliance on wholesale deposits. With competition for deposits still intense, banks continue to face challenges in mobilizing low-cost deposits.” It said, adding that it expects deposit growth in the range of 0.5-5.1% on a sequentially.
In Focus: NIM, Asset Quality
Axis securities, meanwhile, says with the full impact of the latest repo rate cuts already absorbed, it expects NIMs to reflect a change in product mix shift as cost of funds remain sticky.
“Margins will continue to remain muted and decline QoQ across most lenders (ex-UJSFB). We expect PSBs (flat NIMs QoQ) and larger private banks (3-8 bps QoQ margin compression) to fare better in protecting margins vs their mid/smaller peers,” the brokerage said.
Even as banks have maintained that they are not seeing any immediate impact of West Asia conflict on their loan book, market participants will keenly eye banks’ commercial vehicle and small and mid-sized enterprises business loans.
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