India's banking sector Q2 growth remains solid as lower wholesale funding costs keep margins stable, Bernstein's Pranav Gundlapalle said on Tuesday.
Gundlapalle noted that favorable liquidity conditions, coupled with FCNR inflows, are expected to moderate wholesale deposit costs, potentially delivering a modest sequential improvement in net interest margins.
He warned that headline earnings could be distorted for banks benefiting from significant FCNR flows, but core earnings and net interest income should remain healthy, he added.
On the payments front, the introduction of a merchant discount rate on UPI is creating a sizeable revenue pool—Bernstein estimates it could reach ₹27,000 crore by FY28—while large merchants anchor the pool, limiting cash shift risk.
Leadership shifts at major private banks could sway sector sentiment. HDFC Bank's transition is seen as a governance win, whereas Kotak Mahindra's new CEO could steer sustained growth above system averages, Gundlapalle said.
Coming quarter's earnings will test bank resilience as the market watches how wholesale cost dynamics and merchant revenue streams translate into actual profitability. Investors will also gauge the impact of upcoming capital adequacy and credit loss provisions.