For the first time in many years, leading Indian banks, including HDFC Bank, ICICI Bank, Axis Bank, and even mid-sized ones such as RBL Bank, have refrained from providing specific growth guidance for the fiscal year following their Q4 earnings announcements.
Despite a better-than-anticipated show in FY25, amidst a reset in retail asset quality, the weak overall macros have prompted banks to take a step back from handing out guidance for FY26.
The Q4 of every fiscal is closely watched by investors for guidance from bank managements on how they see the next fiscal.
This silence over FY26 guidance stems from the unprecedented challenges posed by a steep cut in repo rate by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), according to Asutosh Mishra, a BFSI analyst at Ashika Stock Broking. The easing cycle has put pressure on banks’ net interest margins (NIMs) as they face a lag in deposit rate increases following rate cuts.
The NIM pressure
Amitabh Chaudhry, MD and CEO of Axis Bank, while addressing the press post Q4 results, refrained from providing specific growth guidance for deposits or advances, citing the volatile external environment with numerous variables shifting daily.
While we are confident in terms of growth and profitability as these metrics are better than what they were at the end of the third quarter, we do not give any guidance on growth either on deposits or on the advances side, he said, responding to a Moneycontrol query during the press call.
For Q4 FY25, HDFC Bank reported a marginal decline in NIMs to 3.6-3.7 percent in Q4 FY25 but emphasised its focus on achieving a pre-merger credit-to-deposit ratio of 85-90 percent by FY27. CFO Srinivasan Vaidyanathan, during the earnings call, said he is confident in maintaining loan growth at market rates, stating, “As liquidity and economic activity improve, we are well-placed to grow loans and deposits.” However, the bank stopped short of providing a concrete FY26 growth target, citing “macroeconomic uncertainties.”
This apart, for the first time in many years, banks are also in a wait-and-watch mode as far as global uncertainties are concerned. For India’s big three private banks, this too weighed as an important factor which limited their capacity to give out any strong guidance in growth, (whether loans or deposits) for FY26.
This silence over FY26 guidance stems from the unprecedented challenges posed by a steep cut in repo rate by the RBI’s Monetary Policy Committee (MPC), according to Asutosh Mishra, a BFSI analyst at Ashika Stock Broking.
Interestingly, the stock market may have sidestepped the caution shown by banks.
The Nifty Bank index has risen by 7-10 percent in the past month, largely on rerating of banks due to the positive earnings.
The rate-cut jolt
The rapid monetary easing, which began in February 2025, has created a volatile environment that banks will struggle to navigate, particularly in the first six months of FY26, Mishra said.
He said the rate cuts are expected to be swiftly transmitted to borrowers, lowering lending rates and compressing banks’ NIMs.
“It will be transmitted to the borrowers, and they will take it,” Mishra said, indicating that banks have little choice but to pass on the lower rates to remain competitive.
Moreover, the rapid repricing of loans, compared to the slower adjustment of deposit rates, is likely to pressure profitability, he added.
The RBI cut the repo rate by 25 basis points in February 2025, bringing it to 6.25 percent, and by another 25 basis points in April 2025, reducing it to 6.00 percent.
The challenges in a reducing rate cycle, which banks are facing for the first time after the rate increases they saw from 2022-2023 under the External Benchmark Lending Rate (EBLR) regime are that deposits tend to reprice or become cheaper with a lag of 6-9 months, whereas, loans, primarily retail loans, linked to EBLR see an instant reduction in their rates.
This gap between deposit repricing and loan repricing often results in a shrinkage in the profitability, or net interest margin, of banks.
Another banking analyst added that most banks are likely to face a 25-basis-point decline in yields on assets due to these dynamics, with 50 percent of the bank loan book tied to the EBLR amplifying the impact.
Many banks have delayed adjusting their lending rates since the rate cut cycle began.
“A majority of them dodged the February cut,” he said, adding that some banks have postponed rate reductions until the end of the first quarter of FY26.
The potential for further yield erosion, coupled with challenges in deposit mobilisation and rising credit costs, has made forecasting particularly difficult, he said.
According to a report by India Ratings and Research, loan growth is projected to slow to 13-13.5 percent, while deposit growth is expected to lag at 12-13 percent in FY26, signaling a challenging year ahead.
