RBI chief flagged banks' margin stress, and they see it continuing
India's banking system net interest margin was at 3.21% in June 2026, as against 3.26% a year ago, as per data by the central bank.
The Reserve Bank of India's (RBI) governor, Sanjay Malhotra, recently highlighted declining margins in the Indian banking sector for the period ending June 2026. Net interest margins (NIM) stood at 3.21% compared to 3.26% a year earlier. While some analysts anticipate a stabilization in margins after the June quarter, others believe more pressure lies ahead due to persistently high deposit costs and intense competition for funds.
Axis Bank's CFO, Puneet Sharma, expressed optimism, stating that the "NIMs journey moving in the right direction" is expected post-cycle bottom. However, other lenders such as Bank of Baroda and IndusInd Bank argue that sustained credit growth outpacing deposit increases will continue to pressure deposit mobilization and margins. A rise in lower-yielding corporate loans relative to high-yielding retail loans also contributed to the decline.
Several banks, including ICICI Bank and State Bank of India, have seen margin improvements, but most have refrained from providing outlooks, citing macroeconomic uncertainties and elevated operating expenses. CareEdge Ratings predicted that while pre-provisioning operation profit growth will slow down, future margin improvement will depend on factors such as funding costs and large private banks' performance.
Macquarie Capital's Suresh Ganapathy noted that Q1 did not mark the bottom for bank margins, with Q2 likely to face greater pressure due to FCNR deposit inflows. The central bank's monetary policy committee decided to maintain the repo rate at 5.25% during its recent meeting, with analysts suggesting a dovish stance and potential positive impact on bank margins.
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