Private Banks Show Resilience Against RBI Rate Cut Impact
India's private sector banks are demonstrating remarkable stability in their net interest margins for the fourth quarter of fiscal year 2026. This resilience comes despite a significant 25 basis point repo rate cut implemented by the Reserve Bank of India in December 2025. Bank executives and management teams are expressing confidence that several protective factors will cushion their financial performance.
Key Factors Supporting Margin Stability
Banking leaders point to three primary elements that are helping maintain margin levels. First, there exists a noticeable time lag in deposit repricing. Second, banks are benefiting from an increased proportion of low-cost current account and savings account funds. Third, institutions are adopting more selective approaches to their lending practices. These combined strategies are creating a buffer against the full transmission of recent rate reductions.
HDFC Bank provides a clear example of this dynamic. The bank reported that its net interest margin on total assets actually expanded by 8 basis points to reach 3.35% during the December quarter. Chief Financial Officer Srinivasan Vaidyanathan explained that while earlier rate cuts have been fully absorbed, the most recent 25 basis point reduction is still working through the financial system. He noted that some effects appeared in the December quarter, while additional impacts will emerge over the next one to three months as repricing cycles complete.
Individual Bank Strategies and Performance
Different banks are employing varied approaches to protect their profitability. ICICI Bank maintained a steady net interest margin of 4.3% in the third quarter, unchanged from the previous period. Executive Director Sandeep Batra described expectations for range-bound margins, acknowledging that retail term deposit repricing would partially offset benefits from other areas.
RBL Bank demonstrated particularly strong performance with margins climbing to 4.63% in the December quarter from 4.51% previously. Managing Director R. Subramaniakumar highlighted that approximately 40-45% of their loan portfolio consists of fixed-rate arrangements, helping maintain yields even as market rates decline. He also noted that decreasing deposit costs should provide additional margin protection moving forward.
Federal Bank delivered one of the most positive surprises, with margins improving by 12 basis points to reach 3.18%. This achievement resulted from favorable deposit mix adjustments and effective loan repricing. However, Managing Director K.V.S. Manian cautioned that the complete impact of the latest rate cut would likely manifest in the March quarter.
Industry Outlook and Analyst Perspectives
Financial analysts maintain a measured but constructive view of the banking sector's margin trajectory. Brokerage firms including Motilal Oswal Financial Services and Elara Capital India noted that Federal Bank's December quarter performance exceeded expectations, driven by lower funding costs and an improved Casa ratio approaching 32%. They anticipate broadly stable margins in the coming quarter despite ongoing rate cut transmission.
YES Bank expressed similar confidence, with Managing Director Prashant Kumar stating the institution can maintain current margin levels for the next three months. The bank reported a 2.6% net interest margin for the December quarter and is implementing additional measures to enhance profitability.
India Ratings & Research provided important context regarding system-level trends. The agency suggested that while deposit repricing continues following cumulative rate cuts of 125 basis points since February 2025, substantial margin improvements might not materialize until late fiscal year 2026 or early fiscal year 2027. For now, banks appear focused on quarter-by-quarter margin defense through careful deposit management and strategic portfolio adjustments.
The overall picture reveals an industry successfully navigating monetary policy changes through operational discipline and strategic foresight. Private banks are leveraging their structural advantages and managerial expertise to maintain financial stability during a period of regulatory adjustment.
