Hardening bond yields to weigh on bank profits in September quarter
For the September quarter, Nifty 50 banks are forecasted to see an 11.5% rise in net interest income, yet net profits are expected to grow more slowly at around 10%. This growth is supported by robust capital inflows from the RBI's FCNR-B deposit swap scheme, bolstering deposit growth. Leading banks like Axis Bank and Kotak Mahindra Bank are likely to show substantial profit growth this quarter.
Hardened bond yields are set to negatively impact bank profits in the September quarter, according to ET Intelligence Group's analysis. While the Nifty 50 banks are projected to see an 11.5% year-on-year increase in aggregate net interest income (NII), pre-provision operating profit and net profit growth are expected to be sluggish at around 10%.
This subdued growth is attributed to the pressure on treasury income resulting from the hardening of bond yields. Despite stable asset quality, credit costs are anticipated to remain low throughout the quarter. The quarter was characterized by substantial capital inflows into the banking system via the RBI's 2026 Foreign Currency Non-Resident-Bank (FCNR-B) deposit swap scheme, which attracted over $127 billion, surpassing expectations.
This influx is anticipated to boost deposit growth, which has lagged behind the surge in credit demand over recent quarters. However, these inflows may lead to diluted reported Current Account Savings Account (CASA) ratios and a short-term setback in net interest margins (NIMs) for major private banks.
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