Indian banks are likely to report another steady quarter in Q2FY27, with strong loan growth and improving asset quality offsetting pressure on margins from a surge in FCNR deposits, according to Kotak Institutional Equities.
The brokerage expects the key talking point during the earnings season to be the impact of FCNR deposits on net interest margins, or NIMs. Kotak estimates these deposits could drag quarterly NIMs by around 10-15 basis points, particularly for large private banks.
However, the brokerage does not see this as a sign of stress in the banking sector. Loan growth remains healthy across lenders, while asset quality continues to hold up.
Banks have mobilised significant FCNR deposits, but the money has not yet been fully deployed.
This creates a temporary drag on profitability because banks have to pay for these deposits while it takes time to deploy the funds into loans or use them to replace more expensive liabilities.