Systemic bank lending accelerated sharply heading into the second quarter of FY27. Specifically, banks credit growth remains strong at 18.8% YoY as of September 15, 2026, according to Motilal Oswal Financial Services. The brokerage firm highlights that sustained retail demand, higher corporate borrowing, and increased MSME utilization continue driving this expansion.
FCNR inflows boost system liquidity and ease credit-deposit ratios
Furthermore, foreign currency non-resident or FCNR(B) inflows exceeded expectations by reaching USD 133 billion. These substantial foreign capital inflows provided vital funding support for systemic balance sheets.
Consequently, total deposit growth expanded to roughly 17% YoY from earlier levels of 11% to 12%. This robust deposit expansion helped the systemic Credit-Deposit ratio ease down to 80.8% from its recent peak of 83.4%. However, lenders still face ongoing hurdles in securing low-cost CASA deposits. Therefore, term deposit interest rates will likely stay sticky with an upside bias.
| Financial Metric | Reported Figure / Forecast | Impact / Significance |
| System Credit Growth | 18.8% YoY (as of Sept 15, 2026) | Fueled by retail, corporate, and MSME credit |
| System Deposit Growth | ~17.0% YoY | Accelerated from 11–12% due to foreign inflows |
| FCNR(B) Total Inflows | USD 133 Billion | Accounted for ~4.5% of total system deposits |
| Credit-Deposit (CD) Ratio | Eased to 80.8% | Down from a high peak of 83.4% |
| FY27 Credit Growth Projection | ~15.5% YoY | Expected to settle at steady baseline levels |
Private banks set to lead overall earnings expansion in 2QFY27
Additionally, Motilal Oswal Financial Services forecasts a 24% YoY surge in Profit After Tax for private sector banks during 2QFY27. Net Interest Income across private lenders will likely expand by 13% YoY.
Meanwhile, Net Interest Margins across private institutions may compress by 8 to 20 basis points initially. This temporary margin pressure stems from rapid asset deployment following massive FCNR inflows. However, analysts expect margins to recover gradually as lenders deploy surplus liquidity into higher-yielding loans.
Public sector banks maintain resilient interest margins and asset quality
Specifically, Public Sector Banks demonstrate steady financial health with 2QFY27 net profit expected to rise 27% YoY. Motilal Oswal estimates public lenders will deliver an 11% earnings compound annual growth rate across FY26–28.
Thus, overall banking sector earnings will likely compound at approximately 15% annually over the same period. Furthermore, slippage rates and credit costs remain tightly controlled across both secured and unsecured portfolios. Nevertheless, analysts monitor potential macro uncertainties and below-normal monsoon effects on long-term repayment behavior.
