According to a report by S&P Global Market Intelligence, Indian banks are facing mounting margin pressures amid slowing loan growth and sustained high interest rates. The report indicated that the collective loan growth for six of India’s largest public and private banks is expected to slow to 12.3% for the fiscal year ending March 31, 2025, compared to the 22.5% growth seen in the previous fiscal year.
It highlighted, “Indian banks face margin pressures as loan growth slows amid high interest rates… Net interest margins (NIMs) at most lenders are projected to decrease, with weaker NIMs anticipated as deposit rates catch up and monetary easing approaches.”
Despite the deceleration in loan growth, Indian banks are continuing to report higher net profits, albeit at a slower pace. The report suggests that most banks’ NIMs are likely to shrink further as deposit rates rise and monetary easing begins. 
In response to these pressures, many banks adjust their lending strategies by reducing consumer loans and focusing more on retail deposits to strengthen their financial positions. The Reserve Bank of India (RBI) has kept interest rates at elevated levels, even as central banks in the US and Europe initiated monetary easing in 2024. The RBI’s ongoing focus on inflation control has also led to a depreciation of the rupee, which fell by 2.8% since November 1, 2024, reaching an all-time low.
To mitigate risks associated with unsecured lending, the RBI increased risk weights for personal loans, credit card loans, and loans to non-banking financial companies (NBFCs) by 25 percentage points in November 2024.
State Bank of India (SBI), a public sector lender, is projected to report a 5.6% increase in net profit to Rs 701.16 billion for FY 2025, up from Rs 663.79 billion in the previous year.
HDFC Bank, the largest lender in India by market capitalization, reported only a 3% increase in gross advances year-over-year for the quarter ending December 31, 2024, while deposits rose by 16%. Additionally, the bad loan ratio across Indian banks has significantly improved, reaching its lowest in years, as the RBI focused on enhancing asset quality. According to the RBI’s December 2024 Financial Stability Report, scheduled commercial banks’ gross non-performing asset (GNPA) ratio decreased to 2.6% in September 2024, attributed to lower slippages, higher write-offs, and steady credit demand.
