MUMBAI: Private sector banks reported higher profits in the Sept-quarter despite the top three banks seeing pressure on net interest margins (NIM).The FCNR(B) deposits boosted the deposit growth rate to a decadal high and expanded balance sheets, but cost of deposits rose because of the higher rate being offered under the special scheme to NRIs.The three largest private sector lenders by assets — HDFC Bank, ICICI Bank and Axis Bank — reported margin compression in the second quarter as funding costs rose and deposit competition intensified. Axis Bank saw the sharpest decline, with NIM falling 37 basis points year on year (YoY) to 3.36% from 3.73%. Its net profit rose 37.6% to Rs 7,003 crore, supported by non-interest income and controlled credit costs.
ICICI Bank’s NIM fell 12 basis points to 4.18% from 4.3%, while net profit rose 20.1% to Rs 14,843 crore, aided by growth in advances. HDFC Bank’s margin declined 11 basis points to 3.16% from 3.27%, while net profit grew 4.7% to Rs 19,510 crore as it continued to adjust its credit-to-deposit ratio after merger with HDFC Ltd.YES Bank reported a 65% YoY increase in net profit to Rs 1,080 crore for the quarter ended Sept 30, 2026, driven by higher net interest income and lower provisions. However, the bank said that if the Supreme Court order quashing the write-down of Rs 8,415 crore of AT-1 bonds had been factored in, it would have reported a loss of Rs 5,217 crore and net worth of Rs 46,970 crore, against the reported Rs 53,268 crore. Its NIM rose 10 basis points to 2.6% from 2.5%.HDFC Bank’s margins also reflected the cost of raising $7 billion through FCNR(B) deposits at a weighted average landed cost of 6% to 6.25%, along with a higher share of non-retail assets and liabilities. The bank expects margins to recover over the coming quarters as lending rates reprice faster than funding costs, although rebalancing the asset mix will take two to three quarters. Its CASA ratio has weakened as households shift savings to higher-yielding instruments and the bank replaces maturing wholesale borrowings with bulk deposits. It has also chosen to concede mortgage market share rather than offer home loans at rates that would dilute profitability.Some mid-sized private lenders and public sector banks recorded an expansion in NIM. Federal Bank’s margin rose 26 basis points to 3.32% from 3.06%, while net profit increased 45% to Rs 1,386 crore. Central Bank of India’s NIM expanded 12 basis points to 3.01% from 2.89%, supporting a 21% increase in net profit to Rs 1,469 crore. IDBI Bank recorded the largest margin expansion among the lenders in the comparison, with NIM rising 40 basis points to 4.11% from 3.71%. Its net profit, however, fell 39% to Rs 2,206 crore, reflecting higher provisions or a normalisation of non-core income against a high base.
