Indian banks to face margin squeeze as monetary easing gains pace

NIM

Indian banks are likely to see further pressure on lending margins as the Reserve Bank of India (RBI) continues its monetary easing cycle. Net interest margins (NIMs) — a key gauge of bank profitability — are expected to continue their downward trend, with the average NIM of six major private-sector lenders declining by 15 basis points in fiscal 2026, according to Visible Alpha consensus estimates. The projected decline follows a 21-basis point contraction in the recently reported fiscal 2025, reflecting the growing pressure on banks’ lending income.

HDFC Bank Ltd. (NSE: HDFCBANK), the country’s largest private-sector lender by market capitalization, is projected to see its NIM shrink from 3.45% in 2025 to 3.40% in 2026. ICICI Bank Ltd. (NSE: ICICIBANK) is expected to register a steeper fall, with margins slipping from 4.25% to 4.13% over the same period. Similar trends are expected for Axis Bank Ltd. (NSE: AXISBANK), IDFC First Bank Ltd. (NSE: IDFCFIRSTB), RBL Bank Ltd. (NSE: RBLBANK), and Bandhan Bank Ltd. (NSE: BANDHANBNK) — all of which are navigating a more challenging rate environment.

The RBI has cut policy rates twice in 2025 — in February and again in April — after inflation dipped below the central bank’s target range. These cuts mark a significant shift from the central bank’s previous tightening stance, with implications for both lending and deposit dynamics. As lending rates tied to external benchmarks adjust quickly, and deposit rates lag, banks face near-term margin compression.