FCNR inflows, credit demand brighten FY27 outlook for Indian banks
ICICI Securities sees FY27 bank earnings improving on FCNR inflows, ~15% credit growth, and benign asset quality.
Indian banks are poised for better net interest income (NII) and earnings in FY27, aided by strong foreign currency non-resident (FCNR) deposit mobilisation, healthy credit demand, and stable asset quality, according to ICICI Securities.
The brokerage expects systemic credit growth of around 15 per cent year-on-year in FY27, with FCNR deposits likely to contribute positively to growth, NII, and overall earnings.
In the first quarter of FY27, NII growth hit a multi-quarter high of 11 per cent year-on-year. Core pre-provision operating profit and profit after tax grew roughly 15-17 per cent, helped by controlled operating expenses and steady provisioning.
Loan growth accelerated to about 18 per cent year-on-year during the quarter, driven by a 32 per cent rise in NBFC lending and 17 per cent growth in large industry loans. Retail gold loans surged around 95 per cent year-on-year, while ex-gold retail credit grew at a stable 12 per cent.
Private banks gained sequential momentum, with loan growth of about 4 per cent quarter-on-quarter versus 2 per cent for public sector banks (PSBs). However, the brokerage expects the current loan mix to remain favourable for PSBs, with broadly similar credit growth for both segments through FY27.
Deposit growth strengthened to 15.4 per cent year-on-year by end-July, up from around 12 per cent in Q1. FCNR(B) inflows reached USD 52 billion as of August 13, roughly 2 per cent of outstanding deposits. The RBI has advanced the closure of the FCNR(B) mobilisation window to end-August from end-September.
These deposits could support domestic funding costs and NII, making NII growth a more reliable indicator than near-term net interest margin (NIM) movements. NIM performance remains uneven, with large private banks seeing double-digit sequential declines, while mid- and small-sized private banks benefited from gold and SME lending.
Asset quality stayed better than expected despite macroeconomic risks. Gross slippages were around 1.2 per cent, down from 1.4 per cent a year earlier. PSBs reported slippages of about 0.7 per cent, less than half the 1.7 per cent recorded by private banks.