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Key Points

Indian banks faced pressure on net interest margins during the April-June quarter due to RBI's interest rate reductions. While SBI and ICICI Bank managed to post profit growth, other major lenders like HDFC Bank and Bank of Baroda recorded declines. The central bank's recent measures including cutting cash reserve requirements are expected to release significant liquidity into the system. Despite some asset quality concerns, analysts remain optimistic about margin recovery in the second half of the financial year.

Key Points: S&P Global Sees Indian Bank Margins Improving After Weak Q1

  • Four of top six Indian banks posted Q1 net income declines
  • RBI cut benchmark rates by 100 basis points since 2025 start
  • SBI maintained full-year NIM guidance of about 3 percent
  • Analysts don't anticipate sharp increase in non-performing loans
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Indian bank margins likely to improve in fiscal H2 after slow Q1: S&P Global

Indian banks expect net interest margins to recover in H2 FY26 after RBI rate cuts impacted Q1 earnings, with SBI and ICICI showing strength while others declined.

"Several Indian banks are expecting their net interest margins to improve in the second half - S&P Global Report"

New Delhi, August 28

Several Indian banks are expecting their net interest margins (NIMs) to improve in the second half of the current financial year after reporting a weak performance in the April-June quarter, according to a report by S&P Global.

New Delhi [India], August 28 (ANI): Several Indian banks are expecting their net interest margins (NIMs) to improve in the second half of the current financial year after reporting a weak performance in the April-June quarter, according to a report by S&P Global.

The earnings in the first quarter of FY26 were dragged down by a sharp reduction in interest rates.

The report highlighted that four of the top six Indian banks posted a decline in net income in the fiscal first quarter ended June 30. The fall came partly due to the Reserve Bank of India's decision to reduce benchmark interest rates by 100 basis points since the beginning of 2025.

Among the large lenders, State Bank of India (SBI) reported a net profit of 212.01 billion rupees in the April-June period, up 9.7 per cent year-on-year. ICICI Bank Ltd., the largest private sector bank by market capitalization, also reported strong earnings with a 15.9 per cent rise in profit after tax to 135.58 billion rupees.

In contrast, other major lenders, including state-run Bank of Baroda and Punjab National Bank, along with private sector peers HDFC Bank Ltd. and Axis Bank Ltd., recorded declines in net income, according to S&P Global Market Intelligence data.

Margins also came under pressure in the quarter. SBI, South Asia's biggest lender by assets, reported NIM of 2.77 per cent in the first quarter, compared with 2.99 per cent a year earlier, while maintaining its full-year guidance of about 3 per cent. HDFC Bank saw its NIM slip to 3.94 per cent from 4.06 per cent. Punjab National Bank reported NIM of 2.43 per cent against 2.76 per cent in the year-ago quarter.

On June 6, the Reserve Bank of India cut the proportion of deposits banks are required to keep as cash by 100 basis points to 3.0 per cent. This move is expected to release around 2.5 trillion rupees of liquidity into the banking system by December.

Alongside, the central bank also lowered its benchmark lending rate by 50 basis points to 5.5 per cent, adding to the 100 basis point reduction since the start of 2025 to support economic growth.

Meanwhile, some lenders reported a slight deterioration in asset quality and stepped up provisioning in the quarter. However, S&P Global noted that analysts do not anticipate any sharp increase in non-performing loans, which remain at multiyear lows.

- ANI

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Reader Comments

P
Priya S
As a small business owner, lower interest rates have helped my loan repayments. But I understand why banks' margins are suffering. Hope they find the right balance 🤞
A
Aman W
RBI's rate cuts are good for the economy but tough on banks. The 2.5 trillion liquidity injection should help banks lend more and improve margins in coming months.
S
Sarah B
Interesting to see the divergence between public and private banks. HDFC's margin drop from 4.06% to 3.94% is significant. Hope the recovery happens as projected.
V
Vikram M
While margins are under pressure, it's reassuring that NPAs remain at multi-year lows. Asset quality is more important than short-term margin fluctuations for long-term stability.
N
Nisha Z
Banks should focus on digital transformation and cost optimization to maintain profitability during rate cut cycles. The traditional model needs updating for current challenges.

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