Systematix Institutional Equities projects healthy financial performance for Indian banks in the first quarter of fiscal year 2027 (Q1FY27). The brokerage expects aggregate profitability for its covered banks to rise by 13.7% year-on-year, excluding IndusInd Bank and Bank of Baroda, primarily due to strong advances growth and reduced provisioning costs.
Advances Growth and Deposit Trends
Banking system advances demonstrated strong growth, increasing by 17.7% year-on-year in May 2026, marking the highest annual growth since June 2024. This surge was led by the services sector (20.4%), particularly NBFCs and commercial real estate, and accelerated industrial credit (17.5%). Retail advances also grew by 15.4%, driven by vehicle and housing loans.
Systematix forecasts an overall advances growth of 16.1% YoY for its coverage universe in Q1FY27, with Bank of Maharashtra, Bank of India, Axis Bank, SBI, and Bank of Baroda expected to outperform this average. Deposit growth, however, continued to trail advances, growing 12% YoY as of mid-June 2026, pushing the credit-deposit ratio to approximately 83.4%.
Net Interest Margins and Asset Quality
Net Interest Margins (NIMs) for banks under Systematix's coverage are largely expected to remain stable or slightly decrease in Q1FY27. This is attributed to a higher proportion of corporate loans impacting yields, though delayed repricing of term deposits offers some support. Federal Bank, Kotak Mahindra Bank, and Bank of Maharashtra are specifically noted for potential margin declines due to bank-specific factors.
While fresh slippages are likely to increase sequentially due to seasonal pressures in certain retail and agricultural portfolios, elevated provisioning buffers built in the previous quarter should mitigate credit costs for many institutions. Axis Bank, Federal Bank, Indian Bank, Union Bank, and Bank of Baroda may report lower credit costs, whereas SBI and ICICI Bank could see provisions rise with incremental slippages.
Top Picks and Target Prices
Systematix has identified its top three stock picks for strong performance:
- ICICI Bank: Target Price Rs 1,700
- SBI: Target Price Rs 1,250
- Kotak Mahindra Bank: Target Price Rs 475
Additionally, the brokerage has upgraded Indian Bank to a 'buy' rating with a target price of Rs 950. Other banks with a 'buy' rating include Bank of Baroda (Target Price: Rs 300), Axis Bank (Target Price: Rs 1,600), HDFC Bank (Target Price: Rs 950), Bank of India (Target Price: Rs 170), and Union Bank (Target Price: Rs 190).
Conversely, Bank of Maharashtra has been downgraded to a 'hold' rating with a target price of Rs 96. Federal Bank (Target Price: Rs 1,700) and IndusInd Bank (Target Price: Rs 975) also maintain a 'hold' rating from Systematix.