Indian Banks Show Resilience Amidst Global Uncertainty

Indian banks successfully navigated the March quarter, largely preserving stable asset quality and dispelling concerns linked to ongoing geopolitical events. Brokerages suggest the full impact of conflicts may appear later in the financial year 2026-27, but sector outlook remains constructive due to support from government initiatives.

A notable trend was the mixed performance in Net Interest Margins (NIMs). While large private banks like ICICI Bank and HDFC Bank reported stable NIMs, Public Sector Banks such as SBIN and Union Bank experienced sharper compressions due to their exposure to EBLR and T-bill-linked loans, which were affected by a recent repo rate cut.

Asset quality remained generally sound, with most banks reporting net slippage ratios below 80 bps. IndusInd Bank, Kotak Mahindra, and AXIS Bank saw notable improvements in their slippage ratios. Credit costs varied as banks bolstered provisions against geopolitical uncertainty, with ICICI Bank reporting the lowest credit cost.

Advances growth remained strong, expanding 5.2% quarter-on-quarter and 14.9% year-on-year. Deposit growth also outpaced advances, aided by seasonal factors. Banks are also confident in managing the transition to the new Expected Credit Loss framework, estimating a manageable impact on capital adequacy.