MUMBAI, March 2027 — The September quarter delivered a paradox for India’s private banking titans. Profits climbed to record highs, but the engine room—net interest margins (NIM)—ground to a halt under the weight of expensive deposits. The three largest lenders by assets, HDFC Bank, ICICI Bank, and Axis Bank, all reported margin compression as funding costs outpaced asset yields.
Axis Bank absorbed the sharpest blow. Its NIM fell 37 basis points year-on-year, sliding from 3.73% to 3.73%. Despite this, net profit still jumped 37.6% to ₹7,003 crore. The cushion came from non-interest income and disciplined credit costs. ICICI Bank’s margin dipped 12 basis points to 4.18%, yet its net profit rose 20.1% to ₹14,843 crore, driven by aggressive advance growth. HDFC Bank’s NIM slipped 11 basis points to 3.16%, with net profit growing a modest 4.7% to ₹19,510 crore as it recalibrates its credit-to-deposit ratio post-merger.
The culprit? A decadal high in deposit growth fueled by FCNR(B) schemes. HDFC Bank raised $7 billion through these deposits, landing at a weighted average cost of 6% to 6.25%. This inflated the cost of deposits. While it bolstered balance sheets, it eroded profitability. HDFC Bank expects margins to recover as lending rates reprice faster than funding costs, but the rebalancing act will take two to three quarters. The bank is also conceding mortgage market share, refusing to offer home loans at rates that would dilute its bottom line.
Not all players suffered. YES Bank reported a 65% year-on-year spike in net profit to ₹1,080 crore, aided by lower provisions. However, the bank flagged a caveat: if the Supreme Court order quashing the write-down of ₹8,415 crore in AT-1 bonds had been factored in, it would have posted a loss of ₹5,217 crore. Its NIM actually rose 10 basis points to 2.6%.
Mid-sized and public sector lenders fared better on margins. Federal Bank’s NIM expanded 26 basis points to 3.32%, lifting net profit 45% to ₹1,386 crore. Central Bank of India saw its NIM grow 12 basis points to 3.01%, supporting a 21% profit rise to ₹1,469 crore. IDBI Bank recorded the largest margin expansion, up 40 basis points to 4.11%, though its net profit fell 39% to ₹2,206 crore due to higher provisions.