Banking Stocks to Watch After Q2 FY27 Results: What Matters Most?

Indian banks entered the second half of FY27 with firmer loan demand. The Reserve Bank of India (RBI) reported that non-food bank credit grew 19.1% year-on-year at the fortnight ended September 30, 2026, compared with 11.2% a year earlier. The pickup was not confined to personal loans: agriculture and industry also recorded 19.5% growth each. Such breadth supports the earnings outlook because a larger performing loan book can generate more interest income.

Yet loan growth is only the starting point for judging a bank. Investors need to know whether lending is concentrated in low-risk mortgages, working-capital facilities, unsecured retail loans or large corporate exposures. Strong growth supported by temporary overseas transactions is different from steady domestic disbursements. The September results make this distinction particularly relevant, as several private banks reported sizeable foreign-currency non-resident, or FCNR(B), deposit-related flows.

Deposits Are Just as Important as Advances

Loans earn interest, but deposits provide much of the funding. A bank expanding credit faster than stable deposits may have to offer higher rates on term deposits or rely more on wholesale borrowing. These choices can protect growth in the short run while reducing the interest spread it earns. Investors should compare advances growth with average deposits, current and savings account (CASA) balances, term-deposit costs and the credit-to-deposit ratio rather than celebrate headline loan growth in isolation.

The contrast is visible in the reported numbers. SBI grew advances by 17.84% year-on-year in Q2 FY27, while deposits increased 12.27%. HDFC Bank reported gross advances growth of about 16.3% alongside deposit growth of about 18.8%. Neither pattern tells the whole story: the quality and cost of incremental funding will determine whether loan expansion translates into durable profits. Large FCNR(B) inflows at certain banks also require a separate look at underlying deposit growth.

NIM Shows How Much of the Growth Reaches Earnings

Net interest margin (NIM) measures net interest income relative to the relevant earning-asset base. A bank can report double-digit loan growth yet disappoint if deposit costs rise faster than lending yields. The reverse can happen when the repricing of loans is quicker than the repricing of deposits. Reading NIM alongside net interest income, average loan balances and funding costs gives a more reliable picture than any one figure.

Comparisons between banks need care. HDFC Bank disclosed Q2 NIM of 3.16% on total assets and 3.32% on interest-earning assets. SBI reported 2.94% for the whole bank, while ICICI Bank recorded 4.18%, down from 4.36% in the June quarter. Axis Bank reported 3.36%, or 3.47% excluding the FCNR(B) impact. These figures use bank-specific definitions and business mixes; a higher headline NIM does not, by itself, establish a better investment.

Asset Quality: Look Beyond the Headline NPA Ratio

The gross non-performing asset (GNPA) ratio shows the share of loans classified as non-performing. Declining GNPA ratios are encouraging, but can reflect fresh recoveries, write-offs, and a rapidly expanding loan denominator as well as genuinely fewer defaults. Fresh slippages, the credit cost, the provision coverage ratio and movement in restructured or stressed loans deserve equal attention. A low closing NPA ratio is less persuasive if new problem loans continue to enter the system.

Recent disclosures illustrate the differences. SBI’s GNPA ratio eased to 1.39% in September, with its Q2 slippage ratio at 0.41%. ICICI Bank reported GNPA of 1.20% and net NPA of 0.30%. Axis Bank’s GNPA declined to 1.16% and its annualised gross slippage ratio to 1.48%. PNB brought GNPA down to 2.55% from 3.45% a year earlier, though its slippage ratio was 0.77%, versus 0.71% in Q2 FY26. The trend in new stress matters as much as the improvement in legacy loans.

SBI: Stronger Earnings, With Funding Under Watch

State Bank of India reported Q2 FY27 net profit of ₹23,038 crore, up 14.28% year-on-year, while net interest income increased 14.69%. Whole-bank NIM improved to 2.94% from 2.86% in Q1, and domestic NIM rose to 3.11%. The bank’s loan book expanded 17.84% year-on-year, led by growth across retail, agricultural, SME and corporate lending. Improving asset quality and lower credit costs helped the quarterly performance.

For SBI shareholders, the question is how long that combination can last. Deposit growth of 12.27% trailed advances growth, and the CASA ratio declined to 38.32% from 39.63% a year earlier. Faster term-deposit mobilisation could sustain lending but weigh on future margins. The indicators to watch are the deposit mix, domestic NIM, credit cost and the return generated on the bank’s expanding equity base.

ICICI Bank and HDFC Bank: Different Earnings Tests

ICICI Bank delivered net profit of ₹14,843 crore in Q2, up 20.1% year-on-year, with net interest income rising 17.7%. Reported loans grew 30%, but the bank specified a 24.1% increase after excluding loans against FCNR(B) deposits through international branches. Its NIM slipped to 4.18% from 4.36% sequentially, while the GNPA ratio improved to 1.20%. 

HDFC Bank reported net profit of about ₹19,510 crore, an increase of 4.7%, while net interest income grew 9.7%. Its 3.16% NIM on total assets was below the previous quarter, but deposit growth outpaced advances growth, and the GNPA ratio fell to 1.11%. The investment case therefore rests less on headline credit acceleration and more on rebuilding margins, maintaining deposit discipline and converting a large balance sheet into stronger return on equity.

Axis Bank: Separate Reported Growth From FCNR(B) Flows

Axis Bank reported 23% year-on-year advances growth, 21% deposit growth and a 38% rise in quarterly profit to ₹7,003 crore. The bank also disclosed an adjusted advances growth figure of 19% and deposit growth of 17% after excluding specified FCNR(B)-backed balances. NIM was 3.36% on the reported basis, compared with 3.47% excluding the FCNR(B) impact. This makes an adjusted comparison essential when assessing the underlying pace of business.

On asset quality, Axis reported GNPA of 1.16%, down 30 basis points year-on-year, with net credit cost at 0.45%. The bank’s improvement is more credible when assessed together with declining gross slippages, rather than the closing NPA ratio alone. Investors should now examine whether the reported momentum in small business, SME and mid-corporate lending can support fee income and profitability after the effect of exceptional deposit-related flows normalises.

Kotak and PNB: Margin Discipline Versus Turnaround Progress

Kotak Mahindra Bank’s standalone profit rose 29% year-on-year to ₹4,212 crore. Reported net advances grew 25%, but growth was 19% after excluding FCNR(B)-backed loans and a loan portfolio acquisition. NIM moderated to 4.31% from 4.53% in Q1, largely reflecting the foreign-currency deposit exercise, while GNPA declined to 1.04%. The important test is whether its underlying deposit franchise and lending mix restore margin stability without compromising credit standards.

Punjab National Bank reported net profit of ₹5,532 crore, up 12.8%, with advances growth of 14.7% against deposit growth of 9.9%. Global NIM improved sequentially to 2.58% from 2.50%, and GNPA fell 90 basis points year-on-year to 2.55%. The cleaner loan book offers room for steadier profitability, but the modest increase in its slippage ratio deserves attention. For PNB, continued margin improvement and controlled fresh stress are more meaningful than an isolated quarterly profit increase.

What to Watch in the December Quarter

The December 2026 results will show whether credit growth is sustained without a material increase in funding costs. The most revealing measures will be average deposit growth, the CASA and term-deposit mix, sequential NIM, and the difference between reported and FCNR(B)-adjusted loan growth. Investors should also look for evidence that loans to small businesses, households and corporates are contributing to interest income at acceptable risk-adjusted yields.

Credit quality remains equally important. Track fresh slippages, provisioning coverage, credit cost and any deterioration in unsecured or smaller-business portfolios. On valuations, compare the market price with current book value and normalised ROE rather than assume that a strong quarter deserves an immediate rerating. The RBI’s monetary-policy decisions and deposit-rate competition may affect margins differently at each bank.

Conclusion

Q2 FY27 confirmed that Indian banks are operating against a stronger credit backdrop, and several major lenders reported healthier asset quality. SBI combined growing interest income with better margins; ICICI Bank delivered strong underlying loan growth but faced sequential NIM pressure; HDFC Bank showed improving deposit growth and asset quality. Axis and Kotak need to be read with adjustments for FCNR(B)-related flows, while PNB’s improving NPA ratios require continued monitoring of new slippages.

Sustainable loan growth, reasonably priced deposits, stable net interest margins, controlled credit costs, and a valuation supported by ROE should carry more weight than a headline profit surprise. These six banks merit continued tracking after Q2, but whether any share offers value depends on its market price and the durability of the earnings it can deliver.