Banks’ net income likely to decline 4% on margin pressure due to rate cuts
Banks are in for a bad quarter in March both in terms of net income and high pricing for liabilities, say analysts.
A preview of earnings of 19 listed banks is likely to show their net profit has declined by 4% yea-on-year in March quarter, mainly due to pressure on net interest margins (NIM) as a result of rate cut by the Reserve Bank, as per analysts. The profit decline is led by private sector lenders and not public sector lenders, the traditional laggards. Additionally, analysts expect a contraction in the NIM to the tune of 5-8 bps for the March quarter.
They expect NIM to remain under pressure in Q1FY26. As per Elara Capital, the first six months of FY26 may be characterised by strained liquidity, softer loan growth, pressure on NIM, and sustained vulnerability in Micro finance institutions (MFIs) and unsecured segments. There are more pain areas for banks as loan growth is expected to further slowdown amid low demand in certain secured products, stress in unsecured segment, and a high credit to deposit ratio system-wide. The only silver-line is that banks are set to gain from softening of bond yields, boosting their treasury income, they say.
As per analysts, private banks are set to see their net income declining by 5.3%, while state-owned banks may see it much lower at 2.5%.
The net interest income has been impacted due to moderation in credit disbursements and some policy transmission by way of lowering the prices of existing loans after the repo rate cut in the February review. However, treasury gains from softening yields may partly compensate for subdued net interest income in Q45, said Karan Gupta, a director and head of financial institutions at India Ratings.