JM Financial's analysis projects that banks across India will post solid after-tax earnings growth in the second quarter of FY27, even as financing-side strains are expected to linger despite liquidity conditions remaining broadly comfortable at the system level.

Banking data showed loan portfolios expanding at a year-on-year rate of 19.1 per cent while deposits climbed 15.8 per cent over the same period, with both figures drawing support from a pickup in Foreign Currency Non-Resident (Bank) — FCNR(B) — deposit mobilisation. On a quarterly basis, deposit growth came in at 5.8 per cent during Q2FY27, a pace that lifted the aggregate credit-deposit ratio by roughly 70 basis points, bringing it to 86.7 per cent.

The report pointed to FCNR(B) deposits as a contributing factor, with its findings indicating that economic momentum in Q2FY27 had built upon the pace recorded in the preceding quarter. Provisional updates from large private-sector lenders pointed to healthy expansion in their loan books, while deposit mobilisation at those institutions — advancing at 18.7 per cent year on year — outpaced the 13.1 per cent pace recorded at public-sector banks.

Across the broader banking system, Reserve Bank of India fortnightly data as of 15 September 2026 placed credit growth at 18.1 per cent and deposit growth at 17.3 per cent year on year, with the system-wide credit-to-deposit ratio settling at roughly 81 per cent. Liquidity across the banking system held at an easy level through the period, with the aggregate surplus climbing to Rs 4.7 trillion as September 2026 drew to a close.

The brokerage noted that persistently high credit-deposit ratios point to continued strain on bank funding, a pressure that the firm's analysis indicated would be unlikely to ease as inflows tied to FCNR(B) deposit schemes begin to slow. Healthy balance sheet expansion and contained credit costs are forecast by JM Financial to underpin banking sector earnings in Q2FY27, even as margin headwinds persist.

Operating expenses are forecast to climb at a pace of roughly 7 per cent against the prior year, a rate that trails balance sheet expansion and thereby supports pre-provision operating profit growth of close to 8 per cent. The report also flagged that net interest margins across most banks face a sequential decline, attributing this to two converging factors — the lag between receiving the influx of FCNR-B deposits and putting those funds to productive use, alongside tepid growth in current account and savings account balances — while treasury income faces its own headwind from climbing yields.

On the asset-quality front, the picture held broadly steady, with stress in unsecured retail and microfinance books continuing to ease. Loan disbursements held up well enough to keep collection efficiency near the 99 per cent mark, and the ratio of non-performing assets to gross advances moved in a favourable direction over the period.