Strong growth obscured by margin compression; FCNR windfall masks core weakness

Delivered NII growth aligned, implied by NIM 4.18% vs prior 4.36%

Delivered: 30% YoY growth confirmed

Delivered: PAT grew 21.4% YoY (beat claim)

Delivered growth; ₹18B FCNR boosted (temporary source)

NIM fell 8-10 bps (4.36% to 4.18%); management attributes to FCNR and overseas expansion

FCNR inflow ($18B) and overseas branch expansion diluted domestic NIM from 4.36% to ~4.32% (ex-FCNR effect). Not yet in Q2 average but will drive Q3 compression.

Management reiterated no specific FY27 targets (consistent with FY26 call). Did not raise growth or margin guidance despite strong Q2; maintained 'risk-calibrated approach.'

Loan growth ran at 30% vs prior expectation of 20-25% (implied by prior guidance cadence). Management did not formally revise but acknowledged strength; attributed to policy support and FCNR opportunity.

Provisioning fell to ₹8.51B (4.1% of PBT) vs ₹9.14B in Q2 FY26. Normalized to ~50 bps; better than prior 60-80 bps band. No forward guidance change, but trend positive.

FCNR added deposits at lower margin; overseas branches now >7% of book, depressing blended margin. Expect moderation in Q3, recovery from Q4 as FCNR deploys and rates peak.

FCNR deployed across loan growth and NRI franchise building. Growth ~24% ex-FCNR (vs 30% total). Funds available 3-5 years; very stable source. Bulk deposits used to relieve pressure.

We do not give a forecast. NIM to start increasing even at current policy rates. Expect moderation only in Q3.

We do not give forward guidance. Growth driven by risk-calibrated approach, policy support, and FCNR opportunity. As long as customers meet risk-return threshold, we grow.

Corporate growth is real demand response and base effects. Retail growth picking up to 15%. No temporary parking; reflects client demand across segments. Risk-calibrated opportunity.

Full impact will show in Q3 averages. Expect further moderation, offset partly by rate hike. Q4 onwards, margins recover as FCNR deploys and rate cycle peaks.

Overseas margins supported by dollar rate hikes. Full FCNR impact on CASA ratio will show in Q3 averages; recovery from Q4. Excess liquidity to deploy over next 2 quarters.

No. FCNR is one-off opportunity for growth, not a strategic pivot. Long-term focus remains sustainable earnings growth and risk-calibration. FCNR provides fixed-rate funding cushion.

Management reaffirmed prior stance: no quantitative targets due to macro uncertainty. Q2 growth 16.2% YoY reported.

Q3 headwind from FCNR full impact on balance sheet and agri provisioning. Recovery assumes rate hike completion and FCNR deployment.

Management cites RBI inflation management; two more 25 bps hikes possible. Expects moderation then provides margin cushion.

NIM fell 18 bps QoQ to 4.18%; further Q3 compression expected from FCNR full impact and agri provisioning. Recovery depends on rate cycle completion and FCNR deployment. No quantified recovery timeline given.

Reported 30% loan growth includes $18B FCNR deployment. Excluding FCNR, core growth ~24% YoY. Analysts questioned whether this is sustainable or a one-off. FCNR is 3-5 year instrument, not perpetual.

Credit card book declined 9.7% YoY; attributed to seasonal (last year festive buildup before this year). Underlying profitability stable; risk is if festive recovery delayed or macro slows consumer spend.

RBI-directed agri standard asset provisioning (₹12.83 Cr in Q3 FY26) still under review. Provision reversal timeline unclear; could impact future earnings if delayed to FY28.

FCNR deposits are 3-5 year tenor. If USD rates fall or FX volatility occurs, outflows possible. Refinancing risk if rates reset at maturity.