Banking – Indian Banks Poised for Strong FY27 Growth Backed by Credit Demand
Banking – Indian banks are heading into the financial year 2026-27 on a positive note, supported by healthy loan demand, stronger deposit mobilisation, stable asset quality, and expectations of supportive monetary policy measures. According to a research report by Ashika Institutional Equities, these factors are expected to help the banking industry maintain steady earnings growth over the coming quarters.
Credit Expansion Remains a Key Growth Driver
The report highlighted that lending activity across the banking system has continued to improve, with demand coming from multiple segments of the economy. Secured retail loans, MSMEs, service industries, and selected corporate borrowers are expected to remain the primary contributors to credit expansion during FY27.
As of June 30, 2026, non-food credit growth stood at 18.6 percent year-on-year, while deposits increased by 13.3 percent compared with the previous year. The brokerage noted that this level of credit growth is the strongest recorded in more than a decade, excluding the impact of the HDFC and e-HDFC merger. Looking ahead, the report projects overall banking system credit growth to remain close to 15 percent throughout FY27.
Deposit Mobilisation Expected to Improve Further
Ashika Institutional Equities believes improving deposit collection will provide banks with sufficient resources to support continued lending while maintaining prudent underwriting standards. The report also pointed to the special Foreign Currency Non-Resident Bank [FCNR(B)] deposit window as an important source of additional funding for lenders.
It estimates that FCNR(B) deposits could attract nearly 50 billion US dollars by September 2026. Such inflows may contribute around 1.8 percent to overall system deposit growth. For several large banks, these deposits could increase annual deposit growth by an estimated 1 to 3 percent during FY27.
Interest Rate Outlook May Support Profitability
The report expects the Reserve Bank of India to raise the repo rate by 25 to 50 basis points during the second half of FY27. Banks with a larger proportion of loans linked to external benchmark rates could benefit from such policy changes through improved net interest income.
Additionally, the RBI’s FCNR(B) zero-cost swap facility is expected to reduce funding costs for participating banks. Lower-cost funding, combined with improved deposit availability, could help lenders maintain healthier interest margins despite ongoing competition for deposits.
Asset Quality Continues to Remain Stable
One of the strongest aspects of the banking sector continues to be its asset quality. According to the report, Scheduled Commercial Banks reported a Gross Non-Performing Asset ratio of 1.8 percent in March 2026, marking one of the lowest levels seen in several decades. Net Non-Performing Assets remained at just 0.4 percent.
The report added that strong provisioning levels and relatively low credit costs should continue supporting bank profitability. However, it also cautioned that the MSME segment requires close monitoring, as signs of rising stress have started to emerge within this category.
Strong Deposit Franchise Likely to Differentiate Banks
Looking ahead, Ashika Institutional Equities believes that banks capable of consistently attracting deposits, protecting their Current Account Savings Account (CASA) base, and effectively managing the rising cost of funds will be better positioned than their peers.
The report concluded that institutions with healthy capital buffers, resilient balance sheets, stable asset quality, and strong deposit franchises are likely to deliver comparatively stronger financial performance throughout FY27 as the sector continues to benefit from favourable operating conditions.