ICICI Bank warns of more margin pressure as repo cuts bite | Company Business News

Mumbai: ICICI Bank Ltd expects further pressure on its net interest margins (NIMs) in the July-September quarter, as the full impact of the Reserve Bank of India’s (RBI) rate cuts continues to play out.

The private lender’s NIM—a key measure of profitability—has been steadily declining in recent quarters. It stood at 4.34% in April-June (Q1FY26), compared to 4.41% in the March quarter and 4.36% a year earlier. For the full FY24, the bank reported NIM of 4.53%, which fell to 4.32% in FY25.

“We do expect the NIM to sort of compress a little more in the next quarter. After that, we will see how it goes,” said Sandeep Batra, executive director, ICICI Bank, told reporters after announcing the bank’s Q1 results on Saturday.

Batra noted that the margin trajectory will depend on RBI’s policy actions and overall liquidity conditions. Since February, the central bank has cut the repo rate by 100 basis points, squeezing margins across the banking sector. While over 60% of floating-rate loans in the system are linked to an external benchmark that tracks the repo, deposits remain at fixed rates and reprice more gradually, putting temporary pressure on margins.

ICICI Bank’s margins, Batra said, were about 4% before the start of the rate hike cycle in FY22, peaked at 4.5%, and have since softened to current levels.

“In comparison to the current quarter (Q1FY26), the impact of transmission of repo rate cuts on external benchmarks linked to loans is expected to be higher in the next quarter, and I think that’s just a function of the cycle,” said Batra. “Of course, it will be partially set off by savings rate reduction and gradual repricing of term deposits.”

According to the bank’s investor presentation, the cost of deposits declined to 4.85% in Q1 from 5% in the preceding quarter.

Despite the margin compression, ICICI Bank reported a strong 15.5% year-on-year rise in net profit to ₹12,768 crore for the June quarter, supported by higher total income. Gross non-performing asset (NPA) ratio held steady at 1.67% sequentially.

Loan growth, however, moderated. Domestic advances grew 12% year-on-year to ₹13.3 trillion, with retail loans rising 6.9%, corporate loans 7.5%, and business banking loans 29.7%. Including the overseas loan book, overall credit growth stood at 11.5%. Retail loan growth, in particular, slowed compared to both the previous quarter and the same quarter last year.

Analysts welcomed the earnings but raised concerns about the pace of credit growth.

“ICICI continued on its trajectory of picking profitability over growth with RoA (return-on-assets) maintained at over 2.4%, even as the loan growth slipped to 11.5% y-o-y,” analysts at Sanford C. Bernstein (India) Pvt Ltd said in a note to clients.

“But with a 14% y-o-y earnings per share growth, the bank delivered above expectations with some help from treasury gains that more than offset the credit cost normalization and modest opex growth,” it said. “A continued slowdown in growth continues to be the only complaint.”

The analysts also drew a contrast with recent concerns over asset quality at Axis Bank, describing ICICI Bank’s steady performance as a positive.

They said that the still healthy asset quality trends are positive and the choice of profitability over growth is consistent with the trend in the last few quarters—overall a good set of numbers that justifies its valuation premium.

Axis Bank on 17 July reported a deterioration in asset quality in Q1FY26, citing elevated slippages in retail unsecured loans and changes in NPA classification metrics.

Separately, ICICI Bank said its board had approved the acquisition of 100% stake in ICICI Prudential Pension Funds Management Company Ltd from ICICI Prudential Life Insurance Co. Ltd. The pension business will become a wholly owned subsidiary of the bank, subject to regulatory approvals from the RBI, the Pension Fund Regulatory and Development Authority (PFRDA), and others.

ICICI Prudential Pension Funds Management had total assets of ₹59.26 crore as of 31 March. The bank said the move would help both entities “better capitalise on the synergies in line with the customer 360 focus of the bank.”