India’s private sector banks have delivered a strong set of numbers for the September quarter, but the headline profit growth hides a harder story underneath: margins are getting squeezed, and the deposit mix is shifting in ways that could test lenders in the coming quarters.
A review of the Q2 FY27 results of nine private lenders, as compiled by The Financial Express, shows that net profits were lifted by higher net interest income (NII), healthy credit growth and cleaner balance sheets. Net interest margins (NIMs), however, slipped at several banks, while a sharp rise in foreign currency non-resident (FCNR-B) deposits flattered deposit growth and pulled down current and savings account (CASA) ratios.
Profit growth across the board
Among the large private banks, Axis Bank posted a 38% year-on-year jump in net profit to Rs 7,003 crore. Kotak Mahindra Bank grew profit by 29% to Rs 4,212 crore, and ICICI Bank by 20.1% to Rs 14,843 crore. HDFC Bank, the country’s largest private lender, reported a more measured 4.7% rise to Rs 19,510 crore, even as its NII rose 9.7%.
Mid-sized lenders grew faster. IDFC FIRST Bank nearly tripled its net profit to Rs 1,045 crore on stronger NII and lower provisions. YES Bank’s profit rose 65% to Rs 1,080 crore, Federal Bank’s climbed 45% to a record Rs 1,386 crore, and IndusInd Bank swung back to a profit of Rs 1,242 crore from a loss a year earlier.
Margins remain the pressure point
Kotak Mahindra Bank’s NIM fell 23 basis points year-on-year, while HDFC Bank and ICICI Bank reported sequential declines. Axis Bank’s NIM came in at 3.36%; excluding the effect of FCNR(B) mobilisation, it would have been 3.47%. IndusInd Bank saw a steeper 34 bps sequential fall, largely because of foreign currency deposits.
There were exceptions. Federal Bank expanded its NIM by 26 bps year-on-year to 3.32%, and IDBI Bank’s reported NIM rose 40 bps to 4.11%, although its core margin improved by only 8 bps.
Corporate and business loans lead credit growth
The quarter also pointed to a change in where loan growth is coming from. Corporate, SME and business banking books grew faster than retail at several lenders. ICICI Bank’s business banking portfolio grew 33.8% and domestic corporate loans 30.6%, against 14.8% growth in retail and rural loans. At Axis Bank, corporate advances rose 34% and SME loans 25%, compared with 16% in retail. HDFC Bank’s small and mid-market book grew 23.5%, led by a 28.1% rise in business banking, while retail loans grew 11.7%. YES Bank’s corporate and institutional advances grew 31.4% against 8.7% in retail.
IndusInd Bank was mixed: consumer banking loans grew 38%, partly reflecting FCNR(B)-linked advances, while vehicle finance rose just 5% and rural banking loans shrank 6%.
FCNR(B) inflows flatter deposits, dent CASA
Foreign currency deposits gave headline deposit growth a big lift. ICICI Bank’s 27.1% deposit growth drops to about 17% once FCNR(B) is stripped out, and Axis Bank’s 21% falls to around 17%. The same inflows coincided with lower CASA ratios: Kotak’s fell to 38.2% from 42.3%, Axis Bank’s to 36% from 40%, and YES Bank’s to 30% from 33.7%. Federal Bank bucked the trend, improving its CASA ratio to 32.04%.
Asset quality broadly stable
Asset quality held up well. HDFC Bank’s gross NPA ratio stood at 1.11% and Axis Bank’s at 1.16%. ICICI Bank’s net NPA improved to 0.30% from 0.35% sequentially, and Kotak’s eased to 0.24% from 0.32% a year earlier. IndusInd Bank remained the outlier with a gross NPA ratio of 2.73%.
What it means
The September quarter confirms that private lenders have kept credit momentum and profitability intact. The tougher work now lies in protecting margins and rebuilding a low-cost deposit base once the FCNR(B) tailwind fades, two themes that are likely to dominate the second half of FY27.
