Bank credit rose 19.38% year-on-year to ₹230 trillion in September 2026, while deposits grew 17.83% to ₹283.95 trillion, according to the Reserve Bank of India's latest data. Both advances and deposits have been boosted by the mobilisation of foreign currency non-resident (bank) deposits under the central bank's concessional foreign exchange swap facility between June and August. On a fortnightly basis, bank credit grew over 3% while deposits increased 2.8%, reflecting usual quarter-end expansion in lending and balance-sheet activity. Credit growth remained broad-based across agriculture, industry, services and personal loans, with the addition to bank credit in H1FY27 standing at ₹16.35 trillion, around 1.6 times the ₹10.17 trillion added in the corresponding period a year earlier.
According to latest brokerage reports, banks are expected to post healthy Q2FY27 earnings growth, supported by strong loan demand and deposit mobilisation. However, FCNR-B inflows and subdued low-cost deposit growth may squeeze private-bank margins. JM Financial expects banks under its coverage to report approximately 12% year-on-year growth in profit after tax (PAT) in Q2FY27, compared with around 13% in Q1FY27. The brokerage's provisional updates for 30 banks indicated loan growth of 19.1% YoY and 6.6% quarter-on-quarter, while deposits grew 15.8% YoY and 5.8% QoQ. Net interest margins (NIMs) are expected to contract by 5-20 basis points QoQ, particularly at private banks, as FCNR-B deposits take time to be deployed.
According to reports from The Economic Times, analysts have identified seven banking stocks that are positioned for significant gains over the next year. These recommendations come at a time when the banking sector faces multiple headwinds, including higher oil prices for close to seven months due to the US-Iran conflict and potential inflation pressures that could impact the sector's performance. JM Financial's preferred picks are HDFC Bank, ICICI Bank, Axis Bank, Punjab National Bank (PNB), State Bank of India (SBI), Ujjivan Small Finance Bank, City Union Bank and DCB Bank. Among large banks, it expects Axis Bank's earnings to grow 33% YoY on a low base, followed by Kotak Mahindra Bank at 18% and ICICI Bank at 15%. CareEdge Ratings expects bank credit growth to moderate to around 15-16% in FY27, reflecting higher borrowing costs, a less favourable base in the second half and tighter liquidity conditions.
The banking sector is currently dealing with higher oil prices for close to seven months due to the US-Iran conflict, with additional pressure from RBI's 25 basis points repo rate increase to 5.50% at its October 7 policy review. The 91-day Treasury bill yield increased to 5.39% in the week ended September 25, from 5.21% two weeks earlier, while the lower end of certificate of deposit rates rose to 5.77% from 5.57% over the same period. According to CareEdge Ratings, higher borrowing costs could temper loan demand from retail and corporate borrowers, while the narrowing liquidity surplus and credit growth outpacing deposit growth could put upward pressure on banks' funding costs. Credit typically rises in the last fortnight of a quarter, with the RBI's concessional swap facility operationalised in June encouraging banks to mobilise foreign currency deposits by reducing hedging costs.
HDFC Bank has experienced a sharp downturn, falling more than 28% in 2026 so far, following Q1 earnings that failed to impress the market. However, the bank has appointed ICICI veteran Anup Bagchi as its new Managing Director and CEO, with RBI approving his appointment for a three-year term from October 27 onwards. ICICI Bank shares have gained a little over 1% in 2026, bucking the overall downtrend as Nifty dropped 14% during the same period. Axis Bank and Yes Bank shares have fallen up to 4% this year. This Saturday marks an important day as HDFC Bank, ICICI Bank, Axis Bank, and Yes Bank prepare to disclose their second-quarter earnings, with analysts highlighting HDFC and ICICI's robust deposit growth and solid balance sheets as key focus areas.
According to The Economic Times, when evaluating any sector, it's crucial to distinguish between the real working of businesses and what happens to their stocks. Credit costs are expected to remain benign at around 50 basis points, while asset quality is expected to remain stable with the gross non-performing asset ratio potentially declining by around five basis points QoQ to 1.52% for Mirae Asset Sharekhan's coverage universe. The report emphasizes that while the sector faces operational challenges from interest rates and economic cycles, stock price movements are primarily driven by foreign portfolio investor sentiment toward India's equity markets. CareEdge noted that competition for deposits had remained contained while the banking system was in a liquidity surplus, but that surplus has narrowed and short-term market rates have begun to rise. Analysts recommend accumulating HDFC Bank and ICICI Bank for optimal risk-reward exposure to India's most robust deposit franchises.
