India's Top Banks Brace for Profit Squeeze Amid Lending Slowdown and Rate Cuts

India's leading private-sector banks, HDFC Bank and ICICI Bank, are expected to report earnings this weekend, and their profits could come under pressure from a slowdown in loan growth and thinning margins driven by the Reserve Bank of India's (RBI) recent rate cuts.

The RBI has cut interest rates by 100 basis points since the start of the year, and has also reduced the cash reserve ratio to boost liquidity and further reduce funding costs in an effort to support the country's economic recovery. However, these moves have put pressure on the banks' margins, as lending rates typically reprice faster than deposit rates when interest rates change.

Adding to the banks' challenges, India's gross bank credit growth hit a three-year low in May, as the country's economy gradually recovers from a consumption slowdown last year. The government has urged state-owned banks to boost lending to fuel economic growth, and is also considering issuing new banking licenses for the first time in almost a decade.

Meanwhile, IT services firm Infosys is expected to provide an earnings update on Wednesday, and analysts believe the company may lower or pull its revenue growth guidance as demand for new projects deteriorates amid worsening economic conditions. Tariff concerns are also expected to cloud Infosys' outlook, following similar cautious commentary from rival Tata Consultancy Services.