For India’s banks, the worst on margins may not be over

While private banks’ margins shrank in Q4FY25 and Q1FY26, PSU banks were hit in H1FY26

- Anshika Kayastha

As loan rates adjust faster than deposit costs, most lenders reported thinner margins in the September quarter.

India’s banks are feeling the downside of monetary easing. As loan rates adjust faster than deposit costs, most lenders reported thinner margins in the September quarter, underscoring how the Reserve Bank of India’s 100-basis-point rate cuts between February and June have begun to squeeze profitability.

The hit, though expected, appears stickier than banks had guided. Many lenders had projected a recovery in the second half of the year, but second quarter post-result commentaries suggest the pressure could linger as deposits reprice slowly, credit growth picks up pace, and competition intensifies in low-yield segments such as housing.

The trend highlights the uneven impact of monetary easing—while borrowers benefit from cheaper credit, banks are struggling to keep pace as deposits reprice slowly. The trend underscores how rate cycles, funding costs, and credit growth are pulling profitability in opposite directions.