New Delhi, Nov. 12 -- Indian banks are expected to see further improvement in interest income growth as a rising rate cycle and a shift towards a more favorable loan mix support earnings, according to a report by Kotak Institutional Equities, which expects asset quality to remain stable and credit costs to stay low in the near term.

The report said banks under its coverage recorded a 20 per cent year-on-year increase in earnings in the second quarter of FY27, supported by healthy growth in operating profit and a decline in provisions.

Net interest income (NII), the difference between interest earned on loans and interest paid on deposits, grew around 15 per cent year-on-year during the quarter.

Operating profit rose around 15 per cent,...