MUMBAI: Private sector banks reported healthy profit growth in the September quarter, driven by higher net interest income (NII), robust credit expansion and improving asset quality. However, net interest margins (NIMs) remained under pressure at several lenders, while a surge in foreign currency non-resident (FCNR-B) deposits boosted headline deposit growth but weighed on current account savings account (CASA) ratios.
An analysis of nine private sector banks that have announced their Q2FY27 results shows that corporate and business banking loans grew faster than retail advances at several lenders, signalling a shift in the composition of credit growth.
Among large private banks, Axis Bank reported a 38% year-on-year rise in net profit to Rs 7,003 crore, while Kotak Mahindra Bank‘s profit grew 29% to Rs 4,212 crore. ICICI Bank posted a 20.1% increase to Rs 14,843 crore. HDFC Bank, the country’s largest private lender, recorded a relatively modest 4.7% rise in net profit to Rs 19,510 crore, despite a 9.7% increase in NII.
Mid-sized lenders reported sharper profit growth. IDFC FIRST Bank‘s net profit nearly tripled to Rs 1,045 crore, aided by higher NII and lower provisions. YES Bank‘s profit surged 65% to Rs 1,080 crore, while Federal Bank posted a 45% increase to Rs 1,386 crore. IndusInd Bank returned to profitability with a net profit of Rs 1,242 crore, against a loss in the year-ago quarter.
Despite the improvement in profitability, margins remained a concern. Kotak Mahindra Bank’s NIM contracted 23 basis points year-on-year, while HDFC Bank and ICICI Bank reported sequential declines.
Axis Bank’s NIM stood at 3.36%, compared with 3.47% excluding the impact of FCNR(B) mobilisation. IndusInd Bank reported a sharper 34-basis-point sequential contraction, largely due to foreign currency deposit mobilisation.
Federal Bank bucked the trend, reporting a 26-basis-point year-on-year expansion in NIM to 3.32%. IDBI Bank’s reported NIM improved 40 basis points to 4.11%, although its core margin rose by just 8 basis points.
On the lending front, corporate, small and medium enterprise (SME) and business banking advances emerged as key growth drivers.
ICICI Bank’s business banking portfolio expanded 33.8% year-on-year, while domestic corporate loans grew 30.6%, significantly outpacing the 14.8% growth in its retail and rural portfolio. The trend was similar at Axis Bank, where corporate advances rose 34% and SME loans grew 25%, against 16% growth in retail loans. HDFC Bank’s small and mid-market portfolio expanded 23.5%, led by a 28.1% increase in business banking advances, while retail loans grew 11.7%.
YES Bank’s corporate and institutional banking advances rose 31.4%, compared with 8.7% growth in retail loans.
IndusInd Bank presented a mixed picture. Consumer banking loans grew 38%, partly reflecting FCNR(B)-related advances, while vehicle finance expanded just 5% and rural banking loans contracted 6%.
Meanwhile, FCNR(B) mobilisation provided a significant boost to deposit growth at several lenders, masking a relatively slower expansion in their underlying deposit base.
ICICI Bank reported 27.1% year-on-year deposit growth, which moderated to 17% after excluding FCNR(B) deposits. Similarly, Axis Bank’s reported deposit growth of 21% fell to 17% after adjusting for the specified FCNR(B) impact.
The influx of foreign currency deposits also coincided with a decline in CASA ratios at several banks, highlighting the challenge of mobilising low-cost deposits.
Kotak Mahindra Bank’s CASA ratio fell to 38.2% from 42.3% a year earlier, while YES Bank’s declined to 30% from 33.7%. Axis Bank’s ratio dropped to 36% from 40%. Federal Bank was an exception, reporting an improvement in its CASA ratio to 32.04%.
Asset quality remained broadly stable, with most lenders reporting an improvement in stressed assets.
HDFC Bank’s gross non-performing asset (GNPA) ratio stood at 1.11%, while Axis Bank reported 1.16%. ICICI Bank’s net NPA ratio improved to 0.30% from 0.35% sequentially, while Kotak Mahindra Bank’s declined to 0.24% from 0.32% a year earlier. IndusInd Bank remained an outlier, with a relatively elevated GNPA ratio of 2.73%.
Overall, the results indicate that private lenders have maintained credit momentum and profitability, although sustaining margins and improving the mix of deposits will remain key challenges in the coming quarters.
Source: The Financial Express
