Bank profits seen up 15-25% in July-September as NRI deposit surge squeezes margins

Indian banks are expected to report strong profit growth for the July-September quarter of 2026-27 even as their interest margins come under pressure, according to brokerage estimates published on October 9, 2026, days before lenders begin announcing results. Emkay Research projects a 25.4% year-on-year rise in banks' net profit and calls the quarter a "one-off" because of heavy mobilisation of FCNR(B) deposits, the foreign-currency deposits held by non-resident Indians. A Bloomberg consensus estimate puts sector net profit at about Rs 1 trillion, up 19.6%, with net revenue up 11.1% to about Rs 3.02 trillion. Systematix Research expects slower earnings growth of 14.9% across the banks it covers, excluding IndusInd Bank.

Banks earn most of their income from the gap between what they charge on loans and what they pay on deposits. When a large amount of deposit money arrives at once, as it has through FCNR(B) accounts, banks pay interest on it before they can lend it out. That pushes down their margin, even when total profit is still rising because loans and other income are growing fast.

The estimates point to three things for the rest of the year. First, Emkay expects margins to recover as banks repay expensive borrowings, put the surplus deposits into loans, and, for banks with more floating-rate loans, benefit from the Reserve Bank of India's recent rate hike. Second, strong credit growth above 18% shows businesses and households are still borrowing heavily. Third, the gap between brokerages' estimates, from about 15% to 25%, shows how much results will differ from bank to bank.

There is also a longer-term cost to watch. One brokerage note flags the move to an Expected Credit Loss accounting framework, due in April 2027, which requires banks to set aside money for likely losses earlier and could raise their credit costs.

For depositors, the surge in FCNR(B) deposits and fast deposit growth suggest banks are keen to attract funds. For borrowers, the rate hike and strong loan demand mean lending rates are unlikely to fall soon.

Short-term: Bank results over the coming weeks are likely to show higher profits alongside thinner margins; share prices may react more to margin guidance than to headline profit.

Long-term: If surplus deposits are deployed into loans and expensive borrowings are repaid, margins could recover in the second half, while the 2027 accounting change could raise provisioning costs.

Who is affected: Bank shareholders, depositors including non-resident Indians, borrowers, and investors tracking the financial sector.

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