Banks may see margin, credit cost woes

Bank margins to face pressure from RBI's 100 bps rate cut between February and June 2025

- Anshika Kayastha

Banks are expected to see weak growth in the first quarter of FY26 due to pressure on margins, rising credit costs and cyclically slower business in this period.

"QIFY26 is expected to be a muted quarter with most banks juggling with many adversely moving aspects such as slowing advances growth, margin pressure from consecutive repo rate cuts, seasonally weak fee income, annual appraisal-related expenses in operating expenses, and sustained elevated credit costs for unsecured credit segments," Systematix Research said in a pre-earnings note.

Provisional business updates by banks for QIFY26 showed weak loan growth in Q1 even as deposits picked up pace, Mint reported on 4 July 2025. Initial estimates showed sequential loan growth of 0.2-5% and deposit growth of 0.1-1.3%. This led to private banks' credit-deposit ratio improving to 92% and for public sector banks remaining stable at 78%. Loan growth for these banks was 5-32% year-on-year (y-o-y), barring IndusInd Bank, which saw a decline on a sequential and annual basis. Deposit growth, meanwhile, is estimated to be around 13% y-o-y.