MUMBAI: The banking sector’s Q4 FY25 results revealed a nuanced landscape marked by divergent growth trajectories. Net interest income (NII) growth slowed to 3.57%, a significant drop from 10.39% in Q4 FY24. This deceleration was also evident compared to Q3 FY25’s 7.08% growth. Profit growth mirrored this trend, with a moderate 4.38% increase in Q4 FY25, a notable decline from the robust 24.89% growth in Q4 FY24 and 13.33% in Q3 FY25.
The margin pressure was anticipated, and in Q3, Bank of Baroda revised its net interest margins (NIM) guidance lower by 5 basis points (bps). For Q4, the bank reported a NIM of 2.86%, compared to 3.27% in Q4 FY24. Debadatta Chand, MD & CEO of Bank of Baroda, noted that “margin pressure would continue in Q1.” The decline in interest rates has impacted the banking sector’s performance, and bankers expect NIMs to improve only from Q3 and Q4 of FY26, as deposit repricing is expected to take around 6 months.
SBI Chairman CS Setty echoed this sentiment, stating, “I think there definitely will be pressure on NIM.” However, he expected the pressure on SBI’s income to be relatively less, given that only 29% of their loans are linked to the repo rate. For Q4 FY25, SBI recorded a NIM of 3.09%, compared to 3.28% in Q4 FY24.
Despite these headwinds, the sector’s advances growth remained resilient, reaching 10.94% in Q4 FY25, although lower than the 19.13% growth in Q4 FY24. Deposit growth kept pace, with a 10.9% increase in Q4 FY25, albeit lower than Q4 FY24’s 13.65% growth. The banking sector’s net NPAs continued to decline, with a 12.81% decrease in Q4 FY25, compared to a 21.19% decline in Q4 FY24.
PSBs maintained a steady reduction in net NPAs, reflecting effective asset quality management and robust recovery efforts. In contrast, private sector banks reported an 11% growth in net NPAs for Q4 FY25, compared to a 6.75% rise in Q4 FY24. Apart from IndusInd Bank (net NPA at 0.95% for Q4), which reported a loss for the first time in 19 years, private sector banks like HDFC Bank, Axis Bank and Bandhan Bank also reported a marginal rise in net NPAs by 11 bps, 2 bps and 16 bps, respectively. For the overall banking sector, the net NPAs stood at Rs 90,759 crore as of Q4 FY25, compared to Rs 1,32,088 crore in Q4 FY24.
The banking sector’s performance reflects the complexities of the current economic environment, with institutions navigating challenges such as declining interest rates, trade and tariff tension and heightened competition. To thrive in this landscape, banks will need to remain agile and innovative, adapting to the uncertain and volatile environment. SBI Chairman Setty expects the bank’s treasury performance to benefit from the rate cut cycle. In the analyst call, Setty said, “Treasury is a core activity for us because we run the largest treasury in the country”.
Meanwhile, other banks are focusing SMEs, mid-market business and unsecured like credit cards to maintain margins.
As the banking sector navigates these challenges, it will be interesting to watch how banks adapt and act in an uncertain environment.
With the rate cut cycle underway, banks will need to balance their treasury operations, manage asset quality, and innovate to maintain profitability. The sector’s performance will likely remain nuanced, with divergent growth trajectories across different banks and business segments.
Source: The Financial Express
