MUMBAI: The profitability of several private sector banks experienced a moderation in the fiscal year 2025-26, primarily influenced by downward pressure on net interest margins and a decline in treasury income, according to an analysis of investor presentations by various financial institutions.
Information was available with The Chenab Times indicating that the return on equity (RoE), a crucial metric reflecting earnings generated from shareholders’ capital, faced challenges. This was largely attributed to a compression in margins, a phenomenon observed as banks repriced loans faster than deposits within a declining interest rate environment.
Sachin Sachdeva, vice president and sector head for financial sector ratings at Icra, explained that the banking sector encountered pressure on its net interest margins (NIMs) in FY2026. He noted that this was a consequence of loans being repriced more rapidly than deposits amid a reduction in the repo rate. Sachdeva further stated that this trend, coupled with an increase in credit costs, had a discernible impact on the banking sector’s profitability, leading to a decrease in return on equity.
Adding to the analysis, Sanjay Agarwal, senior director at CareEdge ratings, highlighted that the banking system incurred noticeable treasury losses in the fourth quarter of FY26. This was primarily due to a spike in the yields of dated government securities towards the close of March.
Agarwal elaborated that with deposit growth lagging behind credit expansion, NIMs have remained under pressure and are expected to continue their downward trajectory. Consequently, the overall profits for the banking system have remained range-bound, resulting in a decline in both return on assets (RoA) and return on equity (RoE).
An examination of investor presentations from major private lenders revealed specific trends. HDFC Bank, for instance, saw its RoE dip marginally to 14.3 per cent in FY26 from 14.6 per cent in FY25 and 14.1 per cent in FY24. During the March quarter, the bank’s standalone NIM for the largest private sector lender moderated to 3.38 per cent from 3.40 per cent in the corresponding period of the previous year.
Axis Bank, the third-largest private sector lender, reported a decline in its RoE to 13.15 per cent in FY26 from 16.52 per cent in FY25. Its domestic NIM also decreased to 3.73 per cent in the January-March quarter of FY26, down from 4.08 per cent in the same quarter of FY25. The bank’s profit after tax (PAT) also saw a reduction, falling to Rs 24,457 crore in FY26 from Rs 26,373 crore in FY25.
Similarly, ICICI Bank, the second-largest private sector lender, experienced a moderation in its standalone RoE to 16 per cent in FY26, compared to 17.9 per cent in FY25. Its NIM eased to 4.32 per cent in the March quarter from 4.41 per cent a year earlier.
Kotak Mahindra Bank’s return ratio slipped to 11.08 per cent in FY26 from 12.57 per cent in the preceding fiscal year. Its NIM also declined to 4.67 per cent in the fourth quarter from 4.97 per cent in the year-ago period.
South Indian Bank reported a marginal decrease in RoE to 12.76 per cent in FY26 from 12.90 per cent in FY25, with its NIM moderating to 2.95 per cent in the March quarter from 3.21 per cent a year prior.
Bandhan Bank registered a more significant drop in RoE, falling to 4.8 per cent in FY26 from 11.6 per cent in FY25. Its net interest margin also decreased to 6.2 per cent in the fourth quarter from 6.7 per cent in the corresponding quarter of the previous year.
Looking ahead, Sachdeva anticipates that return indicators will likely remain under pressure in FY27. He cited ongoing challenges in mobilizing deposits at favorable rates and a potential rise in slippages and credit costs, exacerbated by prevailing geopolitical uncertainties.
“With the persisting challenges in attracting deposits at finer rates and the expected increase in slippages and credit cost amid the current uncertain geopolitical environment, the return indicators are likely to witness a slight reduction in FY2027,” he stated. However, Sachdeva added that the internal accruals of banks are projected to remain sufficiently robust to support anticipated growth requirements.
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The Chenab Times News Desk
