Report · Breaking Minute
Treasury income weakened across HDFC Bank , ICICI Bank and Axis Bank in Q2 FY27, reflecting the impact of market movements. While HDFC Bank and Axis Bank reported gains, both saw a sharp year-on-year decline in treasury income. ICICI Bank, meanwhile, swung to a treasury loss.
Banks treasury performance Bank Q2 FY27 treasury performance Year-on-year change HDFC Bank ₹780 crore gain Down 67.4% ICICI Bank ₹230 crore loss Swung from a ₹220 crore gain Axis Bank ₹85 crore gain Down 82.9% Bank Earnings The impact on reported earnings was partly offset by stronger underlying performance. At HDFC Bank, profit after tax excluding treasury trading gains grew 12.6% year on year, compared with 4.7% growth in reported profit. ICICI Bank’s core operating profit, excluding treasury, rose nearly 22%.
At Axis Bank, core operating profit grew 11%, while reported operating profit growth was around 6%, reflecting the sharp decline in trading income. FCNR(B) inflows add to balance-sheet growth The Reserve Bank of India’s foreign currency non-resident (FCNR(B)) deposit swap window helped large private banks mobilise substantial overseas deposits, boosting their reported deposit and loan growth. ICICI Bank mobilised the most among the three lenders, followed by HDFC Bank and Axis Bank.
Banks FCNR(B) mobilisation Bank FCNR(B) mobilisation Approximate rupee equivalent ICICI Bank $17.88 billion ₹1.70 lakh crore HDFC Bank $11.50 billion ₹1.10 lakh crore Axis Bank $10.62 billion ₹1.02 lakh crore Total $40 billion ₹3.82 lakh crore Bank Earnings The inflows have also influenced reported business growth, making the underlying trends less pronounced once FCNR(B)-linked activity is excluded. At HDFC Bank, retail advances included ₹54,800 crore of FCNR-linked loans. ICICI Bank’s loan growth was 30% year on year, compared with 24.1% excluding FCNR(B)-backed overseas loans.
At Axis Bank, loan growth of 23% moderated to 19.1% after excluding FCNR(B)-backed advances. Deposit growth also looks less robust after adjusting for these flows. ICICI Bank’s year-on-year deposit growth eased from 27.1% to 17% excluding FCNR(B) deposits, while Axis Bank’s declined from 20.7% to 17%.
Margins narrow across all three banks Net interest margins (NIMs) came under pressure at all three lenders in Q2 FY27, although the extent and drivers of the decline varied. Net Interest Margin performance Bank Q2 FY27 NIM Q2 FY26 NIM Year-on-year change Q1 FY27 NIM Quarter-on-quarter change HDFC Bank 3.2% 3.3% -10 bps 3.3% -10 bps ICICI Bank 4.18% 4.30% -12 bps 4.36% -18 bps Axis Bank 3.36% 3.73% -37 bps 3.46% -10 bps Bank Earnings Axis Bank recorded the sharpest year-on-year margin compression, at 37 basis points, while ICICI Bank saw the steepest sequential decline, at 18 basis points. HDFC Bank’s NIM also fell by around 10 basis points both year on year and quarter on quarter.
FCNR(B)-linked activity was one factor weighing on reported margins, as banks absorbed the cost and deployment implications of the additional funds. However, the impact differed across lenders. At HDFC Bank, the yield on assets declined by 10 basis points sequentially to 7.6%, while the cost of funds remained unchanged at 4.4%, indicating continued pressure on lending spreads.
At Axis Bank, the 11-basis-point impact from FCNR(B) flows broadly explains the sequential NIM decline. At ICICI Bank, the quarter-on-quarter comparison was also affected by an 8-basis-point benefit from interest on a tax refund in Q1. Excluding that benefit, the underlying NIM compression was around 10 basis points, broadly in line with the trend across other banks.
What to watch in Q3 The key question for the December quarter is whether banks can deploy FCNR(B) funds at yields that support margins, while the impact of the RBI’s recent rate hike filters through to lending rates. For now, the three lenders present different underlying challenges. ICICI Bank’s sequential margin decline was partly amplified by a one-off benefit in the previous quarter.
Axis Bank faced a significant FCNR(B)-related impact, while HDFC Bank continues to contend with lower asset yields and sticky funding costs. The next quarter will offer a clearer indication of whether the balance-sheet boost from FCNR(B) inflows can translate into sustainable growth without further pressure on margins. Tags
Source: CNBC TV18
