Indian Banks Brace for Margin Pressure Amid High Interest Rates and Slowing Loan Growth
Indian banks are confronting margin pressures due to slowing loan growth and sustained high interest rates. A report by S&P Global Market Intelligence predicts that the aggregate loan growth of India's major banks will drop significantly. Despite these challenges, Indian banks maintain a higher net profit, albeit at a reduced pace.
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- Country:
- India
Indian banks are currently facing significant challenges as loan growth decelerates and interest rates remain elevated, according to S&P Global Market Intelligence's latest report. The research highlights an anticipated drop in the aggregate loan growth of major financial institutions from 22.5% in the previous fiscal year to 12.3% by March 31, 2025.
As deposit rates begin to rise and with potential monetary easing on the horizon, banks are expected to encounter diminishing net interest margins (NIMs). In response, many banks have shifted their focus towards bolstering retail deposits, even as loan growth slows. The Reserve Bank of India (RBI) has maintained high benchmark interest rates, prioritizing inflation control while allowing the rupee to depreciate.
The RBI's recent decision to increase risk weights on unsecured lending is set to impact personal loans and credit card loans. Despite these pressures, State Bank of India is projected to see a 5.6% increase in net profit. HDFC Bank experienced a modest 3% growth in gross advances, with a remarkable improvement in the overall bad loan ratio among Indian banks.
(With inputs from agencies.)