India private banks bet on foreign deposits as margins shrink

Of the four largest private banks, only ICICI bucked the trend.

India’s largest private sector lenders saw their net interest margins (NIMs) come under increasing pressure in the April-June quarter as the central bank’s earlier rate cuts took its toll.

Three of the four largest private sector banks in India reported yearly and quarterly declines in NIMs during the period, with only ICICI Bank bucking the trend with a narrow 2 basis point increase (bp), said S&P Global Market Intelligence.

The central bank reduced its benchmark repurchase rate by a cumulative 125 bps to 5.25% in 2025.

HDFC Bank, India’s biggest private-sector lender, posted a 9-bps year-on-year decline in NIM to 3.26%.

Kotak Mahindra Bank reported a 12bps compression to 4.53%, although this NIM is still the highest amongst the four private sector lenders, said S&P Global Market Intelligence.

Axis Bank’s NIM dropped to 3.46% during the quarter, from 3.8% a year ago, due to margin loss from rate cuts and a change in the mix of its loan book, S&P said, based on statements from its CFO Puneet Sharma.

The lenders have indicated that they want to capitalise on the central bank’s incentives on foreign currency deposits to reverse the downward trajectory of their NIMs, S&P said.

The lenders also plan to increase their share of high-yielding, predominantly retail loans.

The lenders also see the central bank's recent measures to boost foreign currency deposits from non-resident Indians (NRIs) as a potential tailwind, S&P said.