Banks see thinning spreads, driven by credit dip, lower deposits, rate cuts

Growing competition in corporate and institutional credit as well as in home loans, and lower interest rates have also put pressure on lending margins

For the first quarter ended June of financial year 2025-26 (Q1FY26), the net interest margin (NIM) of banks fell by 25 basis points to 2.89 per cent year-on-year (Y-o-Y) and by 10 bps quarter-on-quarter (Q-o-Q). This comes even as the net-interest income (NII) rose by 1.8 per cent to Rs 2.07 lakh crore (1 per cent qoq) during this period.

 

This decline in NIM, according to CareEdge Ratings, was driven by subdued credit growth, deceleration in current and savings deposits, and a central bank rate cut, resulting in a quicker reduction in lending rates relative to deposit rates. Intensifying competition