Banks may see stronger credit growth in FY27, but NIM recovery remains key monitorable: Equirus
New Delhi, July 20
Indian banks are expected to witness stronger credit growth and stable asset quality in the coming quarters, while recovery in net interest margins, deposit costs and retail loan growth will remain key factors for the sector's earnings outlook, according to brokerage firm Equirus.
In its mid-quarter review of the first set of Q1 FY27 banking results, Equirus said, "Entering 2QFY27, asset quality and capital remain strong, while deposit costs appear close to bottoming."
The brokerage said the key focus in the coming months will be "the trajectory of NIM recovery into 2HFY27, the durability of retail/unsecured loan growth, and whether corporate capex inflects sufficiently to sustain the current loan-growth momentum."
According to the report, corporate loans led sequential credit growth during the quarter, supported by higher working capital demand, a shift from bond market borrowings to bank loans and a gradual rise in regular capital expenditure. It also noted improved retail loan disbursements by some banks.
Equirus said NIM trends remained mixed across banks. Mid-sized private banks and public sector banks reported sequential expansion in margins, while large private banks, except ICICI Bank, saw a decline due to faster growth in corporate loans and lower lending spreads.
The report added that funding costs remained broadly stable for large private and public sector banks despite moderation in CASA ratios, while asset quality stayed stable.
The brokerage expects continued credit demand to support the banking sector. However, it said the pace of NIM recovery will remain a key driver of earnings growth. While deposit costs are nearing a bottom, margin improvement will depend on the loan mix and the level of competition.
The report also said retail and unsecured loan growth will need close monitoring as banks balance business growth with asset quality. It added that a sustained rise in corporate capital expenditure could further support loan growth, although the strength and durability of such a recovery remain uncertain.
The brokerage said banks are entering the next phase of FY27 with strong capital positions and stable asset quality, which provide a supportive base for growth. However, it cautioned that earnings recovery is likely to vary across lenders depending on how effectively they manage margins, deposits and credit growth.
— ANI
Reader Comments
As a small business owner, I've personally seen banks being more cautious with corporate loans lately. This report says corporate loans are driving growth, but I wonder if that's only for the big players. For us MSME guys, getting credit still feels like pulling teeth. Good to hear asset quality is stable though—means we're all paying back on time! 😅
Solid analysis from Equirus. The mixed NIM trends between mid-sized private banks and large private banks are telling. Public sector banks finally showing some margin expansion is a positive sign—they've been struggling for years. But let's be real: corporate capex recovery has been 'around the corner' for five quarters now. I'll believe it when I see sustained data.
Ek baat toh clear hai—banking sector ka health checkup aacha hai. Capital positions strong, NPAs under control. But the real test will be if banks can maintain this without going overboard on unsecured lending. Remember the 2015-16 bad loan mess? Let's not repeat that. NIM recovery will separate the good banks from the average ones. ICICI seems well-placed while others need to watch out.
As someone who tracks banking stocks, this report confirms what we've been seeing in Q1 earnings. Deposit costs plateauing is a relief—man, the last two years were brutal for banks trying to attract deposits. But Equirus is right: earnings recovery will be lender-specific. I'm bullish on well-managed mid-sized private banks but cautious on large ones if corporate loan growth stays low-margin. 📉
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