New Delhi [India], January 29 (ANI): Indian banks are facing margin pressure as loan growth slows amid high interest rates, according to a report by S&P Global Market Intelligence.
The report highlighted that the aggregate loan growth of six of India’s largest banks–both private and state-owned–is expected to decline to 12.3 per cent in the fiscal year ending March 31, 2025. This is a sharp slowdown from the 22.5 per cent growth recorded in the previous fiscal year.
It said, “Indian banks face margin pressures as loan growth slows amid high interest rates… Net interest margins at most lenders are expected to edge lower, the estimates show. Weaker NIMs are expected as deposit rates catch up and monetary easing looms”.
However, despite the slowdown in loan growth, the report stated that the Indian banks continue to report higher net profits, although at a slower pace.
The report suggested that net interest margins (NIMs) of most banks are likely to decline in the coming months as deposit rates catch up and monetary easing comes into play.
Many banks have adjusted their lending strategies, reducing consumer loans while focusing more on mobilising retail deposits to strengthen their balance sheets.
The Reserve Bank of India (RBI) has maintained its benchmark interest rates at a high level, even as central banks in the US and Europe began easing their monetary policies in 2024.
The RBI has kept its focus on inflation control, but the report believed it has also allowed the rupee to depreciate as a de-facto easing measure. Since November 1, 2024, the rupee has fallen 2.8 per cent and hit an all-time low recently.
To control excessive lending to riskier customers, the report added that RBI raised risk weights on unsecured lending in November 2024 by 25 percentage points. This measure impacted personal loans, credit card loans, and credit to non-banking financial companies (NBFCs).
PSU lender State Bank of India (SBI), is projected to report a 5.6 per cent rise in net profit to Rs 701.16 billion for the fiscal year ending March 31, 2025, up from Rs 663.79 billion in the previous year.
HDFC Bank, country’s largest lender by market capitalization, saw its gross advances grow just 3 per cent year-over-year in the quarter ended December 31, 2024, while deposits rose 16 per cent. The bad loan ratio in Indian banks has improved significantly, reaching a multi-year low as the RBI focused on asset quality.
According to the RBI’s December 2024 Financial Stability Report, the gross non-performing assets (GNPA) ratio of scheduled commercial banks fell to 2.6 per cent in September 2024. This decline was driven by lower slippages, higher write-offs, and steady credit demand. (ANI)
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