Top Indian banks have reported margin pressure in Q1FY27. However, analysts continue to be positive on the sector as strong loan growth continues. Among the four lenders, ICICI Bank stood out compared to HDFC Bank, Axis Bank and Kotak Mahindra with resilient margins and strong earnings according to JM Financial
JM Financial expects all four banks to maintain healthy double-digit loan growth over the next two to three years, supported by steady credit demand and improving operating conditions.
HDFC Bank Q1FY27: Strong loan growth but margin pressure persists
HDFC Bank’s net interest margin (NIM) fell 12 basis point (bps) in Q1FY27. JM Financial noted that this was a sharper-than-expected decline; however, they are “positive on NIM performance over the medium term, driven by a gradual run-off of high-cost borrowings.”
One of the reason of HDFC’s margin pressure was its lowest-ever level fall in the CASA ratio at 32%.
The decline in NIM was similar to that seen at Kotak Mahindra Bank and Axis Bank. However, ICICI Bank reported better margin resilience during the quarter.
ICICI Bank outperformed peers in Q1
ICICI Bank outperformed peers on loan growth and maintained stable margin. The ICICI Bank earnings were around 5% higher than JM Financial’s estimates, helped by strong net interest income (NII), robust fee income and lower-than-expected provisions.
ICICI Bank’s NIM improved to 4.36% during the quarter. The bank’s net interest income also rose 13% year-on-year (YoY) and 6% quarter-on-quarter (QoQ) to Rs 24,400 crore.
“NIM is expected to remain range-bound under current conditions; FCNR deposit mobilisation and related leverage could have some impact on margins over time,” JM Financial noted.
CASA ratio of ICICI Bank has declined to 39.5% from 41.4% in the previous quarter due to lower current account balances.
“We build in a loan growth (CAGR) of approximately 17% and deposits to grow at 15% over FY26–FY28,” JM Financial noted.
Axis Bank Q1 review
Axis Bank also reported a mixed performance in Q1FY27 as strong loan growth and lower provisions helped boost profit, while pressure on net interest margins (NIMs) continued.
Axis Bank’s calculated net interest margin declined 14 basis points sequentially to 3.25%.
According to JM Financial, the decline was driven by loan repricing following repo rate cuts, a higher share of lower-yielding corporate loans and seasonal factors related to agricultural lending.
Despite the decline, the bank’s management believes the June quarter marks the bottom of the margin cycle.
Management reiterated its structural NIM target of around 3.8% and said it expects margins to gradually improve as funding costs ease and the loan mix shifts towards retail lending.
CASA deposits declined 1.4% sequentially, pulling the CASA ratio down to 38% from 39.6% in the previous quarter. JM Financial said the bank continues to rely more on term deposits to fund its loan growth.
NII, the difference between interest earned and interest paid, rose 8% YoY to Rs 14,641 crore. However, JM Financial said the NII came in slightly below its expectations due to continued pressure on margins.
Kotak Mahindra Bank Q1 review
Kotak Mahindra Bank’s NIM also declined 14 basis points sequentially to 4.53%. The CASA ratio declined to 40% from 43% in the previous quarter as current account and savings account balances fell. Meanwhile, time deposits grew 12.7% YoY and 5.3% sequentially, partially offsetting the decline in CASA deposits.
Kotak Mahindra Bank reported another quarter of healthy asset quality.
Gross non-performing assets (GNPA) improved to 1.18% from 1.48% a year ago, while net NPA stood at 0.27%. Credit costs also improved by 58 basis points YoY to 0.53%.
The management said stress in unsecured portfolios has largely stabilised.
“We forecast a loan CAGR of 16% over FY26–FY28,” JM Financial said for Kotak Mahindra Bank and expect a deposit CAGR of 13%.
Conclusion
The Q1FY27 earnings season highlighted a common trend across India’s large private sector banks: strong loan growth continued, but net interest margins remained under pressure due to repo rate cuts, loan repricing and weaker low-cost deposit mobilisation.
Among the four lenders, ICICI Bank stood out with resilient margins and strong earnings, while HDFC Bank, Axis Bank and Kotak Mahindra Bank reported sharper NIM compression and declining CASA ratios.
