Banking Q1 Results: Strong Credit Growth Drives Private Sector Surge

The banking sector demonstrated exceptional credit growth momentum with non-food bank credit growing 17.4% year-on-year as of the fortnight ended May 31, 2026, compared to 8.8% during the corresponding period of the previous year. Open credit to industry recorded robust annual growth of 17.5% in May, with advances to large industries growing at an accelerated pace alongside sustained healthy expansion in the MSE sector. Credit to agriculture and allied activities registered 14.9% year-on-year growth versus 7.5% in the corresponding fortnight of the previous year. Most significantly, gross non-performing assets as a percentage of total advances dropped to a multi-decade low of 1.8% at the end of financial year 2026, as reported by the Reserve Bank of India's Financial Stability Report. This improvement in asset quality, combined with robust credit growth, positions the banking sector for enhanced profitability in Q1. According to Mint, bank lending stood at ₹215.5 trillion as of June 15, 2026, up 17.7% from a year ago, while deposits stood at ₹258.4 trillion, up 12% year-on-year.

Central Bank recorded the highest year-on-year growth in global advances at around 28.8%, followed by Tamilnad Mercantile Bank at 27%, Dhanlaxmi Bank at 26.5%, and J&K Bank at 25.5%. Among larger lenders, Bank of India reported advances growth of 18.6%, while Canara Bank posted nearly 18% growth, driven by continued demand from corporate borrowers as well as the retail, agriculture and MSME (RAM) segments. Punjab National Bank posted 11.74% year-on-year growth in domestic advances to ₹12.06 trillion as of June 30, 2026, while domestic deposits grew 8.63% Y-o-Y to ₹16.70 trillion. Bank of Baroda saw domestic advances grow 16.14% Y-o-Y to ₹11.51 trillion and domestic deposits increase 14.74% Y-o-Y to ₹13.82 trillion. Among private sector banks, J&K Bank witnessed 25.51% Y-o-Y growth in advances to ₹1.31 trillion, while deposits grew 16.75% Y-o-Y to ₹1.73 trillion. South Indian Bank posted 17.01% Y-o-Y growth in advances to ₹1.04 trillion, with deposits growing 11.39% Y-o-Y to ₹1.26 trillion and CASA deposits growing 14.61% to ₹41,493 crore. Tamilnad Mercantile Bank posted 27.01% Y-o-Y growth in advances to ₹57,306 crore while deposits grew 19.71% Y-o-Y to ₹64,409 crore with CASA deposits increasing 16.94% to ₹16,852 crore. Dhanlaxmi Bank posted 26.5% Y-o-Y growth in advances to ₹15,785 crore with deposits expanding 17.10% Y-o-Y to ₹19,403 crore and CASA deposits increasing 19.55% to ₹5,589 crore.

According to Bloomberg consensus estimates, the aggregate net profits of the banking sector are estimated to rise 9.4% Y-o-Y to ₹90,591 crore in Q1FY27 from ₹82,833 crore a year earlier. On a sequential basis, net profits are expected to decline 3.8% from ₹94,182 crore reported in the March quarter. Private banks are expected to lead earnings growth, with aggregate net profits estimated at ₹49,457 crore, up 11.4% Y-o-Y and marginally higher than in the preceding quarter. Among large private lenders, Axis Bank is expected to report the highest earnings growth, with net profits estimated to rise 22.9% Y-o-Y to ₹7,134 crore. Public-sector banks, however, are likely to see their margins range-bound, with aggregate net profits estimated to rise 7% Y-o-Y to ₹41,135 crore but decline 8.4% sequentially. Among state-run lenders, Punjab National Bank is expected to report the highest profit growth, with earnings estimated to rise 186% Y-o-Y to ₹4,784 crore. According to Motilal Oswal Financial Services, external benchmark-linked loan portfolios have largely absorbed the impact of the repo-rate cuts over the past six months, with changes in product-mix driving yields. The brokerage expects NIM expansion among IndusInd Bank, Federal Bank (adjusted NIM) and DCB Bank during the quarter, while HDFC Bank, ICICI Bank and Axis Bank are likely to report a marginal decline in margins. Systematix expects NIMs across its coverage universe to remain broadly stable or witness marginal sequential compression during Q1 FY27, with the continued increase in corporate loan share weighing on yields, though lagged repricing of term deposit books should partially offset this pressure.

Private banking stocks are gaining attention as lenders report strong Q1FY27 performance in CASA deposits and overall business metrics. HDFC Bank reported CASA deposits climbing 9.4% year-on-year to ₹10.25 lakh crore, while Kotak Mahindra Bank's CASA-end of period increased 10.2% from last year to ₹2.31 lakh crore. AU Small Finance Bank demonstrated exceptional CASA growth with CASA deposits surging 22% YoY to ₹45,400 crore and maintaining a CASA ratio of 28.8% in Q1 FY27. Yes Bank reported CASA deposits at ₹1.03 lakh crore, up 14.3% year-on-year but down 7.8% sequentially, with a CASA ratio of 32.7%. The overall net advances, total deposits, CASA, and other metrics across the industry have surged, indicating a positive outlook for the banking sector. IndusInd Bank reported a CASA ratio of 29.5%, down from 31.2% in March 2026, while retail deposits and deposits from small business customers were ₹1,93,618 crore compared with ₹1,91,263 crore in March 2026. Systematix reports that aggregate profitability is expected to grow 13.7% YoY (excluding IndusInd Bank and Bank of Baroda), driven by strong advances growth and lower provisioning costs, with deposit growth continuing to lag meaningfully behind advances growth and fresh slippages likely to increase sequentially due to seasonal pressures in KCC and select retail/MFI portfolios.