**ICICI Bank Anticipates Further Pressure on Net Interest Margins**
ICICI Bank Ltd is bracing for additional strain on its net interest margins (NIMs) in the upcoming July-September quarter, as the effects of the Reserve Bank of India’s (RBI) recent rate cuts continue to unfold. The private lender has seen a consistent decline in its NIM, a crucial indicator of profitability, which dropped to 4.34% in the April-June quarter (Q1FY26) from 4.41% in the previous quarter and 4.36% a year ago. For the entire fiscal year 2024, the bank reported a NIM of 4.53%, which further decreased to 4.32% in FY25.
Sandeep Batra, executive director of ICICI Bank, indicated that the bank expects NIM to compress slightly more in the next quarter, stating, “After that, we will see how it goes.” He emphasized that the trajectory of margins will largely depend on the RBI’s policy decisions and the overall liquidity environment. Since February, the central bank has reduced the repo rate by 100 basis points, which has impacted margins across the banking sector. Notably, while over 60% of floating-rate loans are tied to an external benchmark that reflects the repo rate, deposits are fixed and adjust more slowly, creating temporary pressure on margins.
Batra noted that ICICI Bank’s margins were around 4% before the rate hike cycle began in FY22, peaked at 4.5%, and have since softened. He anticipates that the impact of repo rate cuts on loans linked to external benchmarks will be more pronounced in the next quarter, although this will be partially offset by reductions in savings rates and the gradual repricing of term deposits. According to the bank’s investor presentation, the cost of deposits fell to 4.85% in Q1 from 5% in the previous quarter.
Despite the compression in margins, ICICI Bank reported a robust 15.5% year-on-year increase in net profit, reaching ₹12,768 crore for the June quarter, driven by higher total income. The gross non-performing asset (NPA) ratio remained stable at 1.67% sequentially. However, loan growth has moderated, with domestic advances increasing by 12% year-on-year to ₹13.3 trillion. Retail loans grew by 6.9%, corporate loans by 7.5%, and business banking loans by 29.7%. Including the overseas loan portfolio, overall credit growth was recorded at 11.5%. Notably, retail loan growth has slowed compared to both the previous quarter and the same quarter last year.
Analysts have acknowledged the bank’s earnings but expressed concerns regarding the pace of credit growth. Analysts at Sanford C. Bernstein (India) Pvt Ltd noted, “ICICI continued on its trajectory of prioritizing profitability over growth with a return on assets (RoA) maintained at over 2.4%, even as loan growth slipped to 11.5% year-on-year.” They also highlighted a 14% year-on-year growth in earnings per share, indicating that the bank has exceeded expectations.
**FAQ**
**What factors are affecting ICICI Bank’s net interest margins?**
ICICI Bank’s net interest margins are under pressure due to the RBI’s rate cuts, which have reduced the repo rate by 100 basis points since February, impacting the margins across the banking sector. The slower repricing of fixed-rate deposits compared to floating-rate loans linked to external benchmarks is also contributing to this pressure.