Lenders in India face a mixed financial landscape for the September quarter as rising bond yields weigh heavily on treasury revenues. Projections compiled by ETIG alongside four brokerage firms show that Nifty 50 banking institutions are on track to achieve an 11.5% year-on-year rise in combined net interest income. Nevertheless, bottom-line profit expansion is set to lag behind this top-line momentum, with both net earnings and pre-provision operating profits capped at roughly 10% overall.
The primary operational headwind stems from elevated bond yields, which put downward pressure on investment books. On the other hand, credit costs across the sector are anticipated to remain low during the period, underpinned by steady asset quality. System-wide liquidity also received a significant surge via the Reserve Bank of India's Foreign Currency Non-Resident-Bank deposit swap initiative maturing in 2026. This drive pulled in more than $127 billion, outpacing initial market projections.
While this foreign currency influx helps bridge the persistent gap between robust loan appetite and lagging deposit accumulation, financial commentators highlight temporary drawbacks for major institutions. A preview by Kotak Securities notes that these inflows could temporarily lower current account savings account ratios and squeeze quarterly net interest margins by 10 to 15 basis points. This margin pressure arises because capital raised at favorable offshore spreads requires time to be fully allocated into yield-generating domestic assets.
Despite these margin constraints, preliminary data covering 30 banking entities demonstrates strong underlying credit velocity. Total advances surged 19.1% year-on-year and 6.6% compared to the prior quarter. Driven largely by the central bank's foreign currency program, deposit growth reached 15.8% on an annual basis and 5.8% sequentially. Looking across its specific coverage universe, JM Financial Institutional Securities projects a 12% annual increase in aggregate net profits.
Earnings trajectories vary widely among individual industry leaders for the September quarter. Among prominent private lenders, Axis Bank is projected to deliver the fastest annual profit growth at 41%, with Kotak Mahindra Bank following at 29%. State Bank of India is slated to record an 11.2% rise in earnings. All three major financial institutions are projected to log double-digit expansion in their net interest income.
Market analysts from Global Financial Services suggest that compressed net interest margins could begin rebounding in the latter half of the fiscal year. This anticipated recovery depends on lenders shedding expensive liabilities and transferring cash reserves into fresh credit distribution, with lenders holding higher proportions of variable-rate loans positioned to gain from recent interest rate increases.
Non-banking financial companies are similarly expected to demonstrate robust quarterly results, fueled by healthy disbursement volumes and solid credit quality. Research from JM Financial points to steady consumer demand and a progressive comeback in loans collateralized by property as key catalysts for multi-segment lenders, with total assets under management projected to expand 20% year-on-year.
Key numbers
- Nifty 50 NII growth forecast: 11.5%
- FCNR-B swap collections: Over $127 billion
- 30-bank loan growth: 19.1% YoY
- Axis Bank profit growth estimate: 41% YoY
- NBFC AUM growth forecast: 20% YoY
What a board might note
- How might the 10-15 basis point margin compression identified by Kotak Securities influence short-term treasury strategies and yield expectations for upcoming debt issuances?
- Does the board need to monitor potential risk exposure in SME and unsecured loan segments as highlighted by JM Financial Institutional Securities?
- How effectively is corporate treasury positioning floating-rate debt to navigate the broader impact of recent interest rate increases noted by Global Financial Services?
- What measures are in place to address potential balance sheet shifts as financial institutions prepare for the upcoming expected credit loss framework transition?
Source: Economic Times, 14 October 2026. This is a summary of a news report, published as general information. It is not legal, tax or investment advice.
This article is journalism and commentary. It is not a recommendation to buy or sell any security, and it is not professional advice. Read the full disclaimer.
