Banking stocks rallied on Friday, with the Nifty Bank index gaining over 500 points to 58,095 ahead of Q1FY27 earnings from major lenders. According to The Economic Times, shares of heavyweight private lenders including HDFC Bank, Axis Bank, Kotak Mahindra Bank and others jumped up to 3%, pushing the banking index higher. Kotak Mahindra Bank shares jumped nearly 3% to trade at ₹386 apiece, while Federal Bank gained more than 2%. HDFC Bank, ICICI Bank and Axis Bank rose more than 1% each, with State Bank of India and IndusInd Bank gaining nearly 1% each. The rally reflects positive investor sentiment ahead of the much-awaited quarterly results scheduled for Saturday.
According to Emkay Global Financial Services, the banking sector is positioned for double-digit profit growth in Q1FY27, with the sector expected to report 12.2% year-on-year growth in profit after tax (PAT) despite facing temporary margin headwinds. As per Emkay Global, the brokerage expects the banking sector to begin FY27 on a healthy note, with strong loan growth and resilient asset quality supporting earnings. However, on a sequential basis, profits may decline by 2.3%, primarily due to elevated funding costs, margin compression and weaker treasury income. The firm believes that robust credit growth, resilient asset quality and easing funding costs from Q2FY27 would support the sector outlook.
According to Vinod Nair, Head of Research at Geojit Investments Limited, the banking sector is showing signs of recovery after a challenging 2025-26. As per RBI data ended mid-June 2026, system credit growth accelerated to 17.7% YoY — the strongest pace in two years — while deposit growth lagged at 12%. The credit momentum is broad-based across services, MSME, industrial and secured retail segments and is expected to sustain through FY27. Emkay Global notes that credit demand across the banking system remained strong, with system credit growth at 17.7% YoY as of mid-June 2026, driven by sustained lending to corporates, NBFCs, MSMEs and select retail segments such as vehicle finance and gold loans. However, deposit mobilisation continued to lag, growing 12% year-on-year, resulting in an increase in the system loan-to-deposit ratio to nearly 83%.
Net interest margins (NIMs) are expected to remain under pressure during Q1FY27 due to multiple factors. According to Emkay Global, margins are likely to decline for most banks as the benefit from reprising term deposits is offset by faster growth in lower-yielding corporate loans, elevated bulk deposit costs and seasonal interest reversals from agricultural loans. Emkay Global expects margins to remain under pressure during the June quarter owing to elevated term deposit rates, seasonal interest reversals related to agriculture and Kisan Credit Card (KCC) portfolios, and a higher share of lower-yield corporate loans. However, the firm expects margin recovery from Q2 onwards due to lower funding costs, improving deposit accretion and a favourable loan mix. Among large private lenders, HDFC Bank is expected to report broadly stable margins, while ICICI Bank and Axis Bank may post marginal sequential decline. PSU banks are expected to report largely stable margins during the quarter.
First-quarter profits were underpinned by stronger-than-expected credit growth, with HDFC Bank Ltd seeing advances grow 15.4% in the April-June quarter, while Axis Bank Ltd reported an 18.8% rise. However, this strong loan demand is squeezing lending margins as loan demand outpaced deposits while the sector absorbed recent rate cuts. According to Nomura, reported loan growth has been strong for HDFC Bank and Yes Bank, but soft for Axis Bank and Kotak Mahindra Bank. For ICICI Bank, Nomura expects loan growth to be strong. However, it overall expects net interest margins to moderate for the lenders. According to Kotak Institutional Equities, provisional numbers suggest solid performance on loan growth across banks, with asset quality holding up well across products, showing no discernible impact from the current Middle East crisis.
Five major lenders are set to report their June quarter results on Saturday, July 18, 2026. According to CNBC-TV18 analyst polls, HDFC Bank's PAT is expected to rise marginally by 1% quarter-on-quarter to ₹19,332 crore, while ICICI Bank's PAT could increase 7% year-on-year to ₹13,616 crore. Axis Bank is projected to report PAT of ₹6,877 crore, up 18% from the previous year, though it may decline 3% sequentially. Kotak Mahindra Bank is expected to show PAT growth of 19% to ₹3,910 crore, while Yes Bank is anticipated to deliver PAT growth of 37% to ₹1,100 crore. The pre-provision operating profit (PPOP) is likely to decline 1% annually but gain 14% sequentially to ₹11,379 crore in the June quarter. Net interest income (NII) across major banks is expected to rise significantly, with HDFC Bank projected at ₹34,353 crore (up 9% YoY), ICICI Bank at ₹23,689 crore (up 9% YoY), and Axis Bank at ₹14,870 crore (up 10% YoY).
