Indian banks are projected to see double-digit profit growth for the June quarter, driven by strong loan demand despite margin challenges. While rising funding costs remain a pressure point, stable asset quality is expected to support overall financial performance.
Indian banks are preparing to report a strong start to the new fiscal year, with projections pointing toward double-digit net profit growth for the first quarter ending June 2026. This outlook, highlighted by research from Emkay Global, relies on the banking sector's ability to balance rapid credit growth against the rising cost of funds.
Credit Growth and Funding Dynamics
The banking system continues to see high demand for loans, with credit growth reaching 17.7% year-on-year as of mid-June 2026. This lending is primarily driven by corporate requirements, support for small and medium enterprises, and specific retail segments such as vehicle and gold loans. However, deposit growth is not keeping pace, currently lagging at 12% year-on-year. This gap has pushed the loan-to-deposit ratio to approximately 83%, a metric that indicates how much of a bank's deposits are being lent out. To bridge this divide, banks have had to rely on more expensive term deposits and market borrowings, which increases their funding costs and puts pressure on profit margins.
Margin Outlook and Asset Quality
Profit margins, often measured by Net Interest Margin, are expected to feel the heat during the June quarter. This is due to the higher interest rates banks must pay to attract deposits and seasonal patterns where interest income fluctuates. Industry analysts expect this pressure to begin easing from the second quarter of the 2027 fiscal year as banks benefit from better deposit collection and a more balanced mix of loans.
On the positive side, the overall health of loan portfolios remains robust. While banks may see some minor issues with agricultural loans and credit card portfolios, the broader trend for non-performing assets—or loans that are not being repaid—remains on a downward path, signaling a healthy credit environment.
Sector Performance Expectations
Performance is expected to vary across the banking landscape. Private sector banks are generally expected to show more resilient operating results, benefiting from their specific focus on core loan growth. Public sector banks are also projected to show solid year-on-year profit growth, though their quarter-on-quarter results might be tempered by lower income from treasury operations and the need for higher financial buffers or provisions. Within the private sector, banks such as Axis Bank, HDFC Bank, IndusInd Bank, and IDFC First Bank are being closely watched for their performance. Among public sector lenders, analysts anticipate that Canara Bank and Indian Bank may show stronger relative performance, while larger entities like the State Bank of India and Bank of Baroda are expected to maintain more moderate growth trajectories. Investors will likely look for updates on deposit growth and margin guidance in upcoming management commentary to gauge if the anticipated easing of funding costs materializes.