Lenders don’t want to chase business growth at the cost of net interest margin (NIM), which is already under pressure due to the ongoing transmission of the 100 basis points repo rate cut to loans even as deposits rates are getting re-set lower with a lag
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Banks’ have turned more circumspect on corporate credit, preferring to let go existing finely priced loans on maturity and not giving in to demands for fresh loans at softer rates from India Inc.
By doing so, they are trying minimise the hit on their margins amid the soft interest rate cycle ushered in since February 2025 by the Reserve Bank of India’s (RBI) monetary Policy Committee and ample liquidity in the banking system.
Lenders don’t want to chase business growth at the cost of net interest margin (NIM), which is already under pressure due to the ongoing transmission of the 100 basis points repo rate cut to loans even as deposits rates are getting re-set lower with a lag.
So, they are focussing their energies on growing the relatively high margin retail and MSME (micro, small and medium enterprise) portfolio.
Large banks such as ICICI Bank, HDFC Bank and Union Bank of India have seen muted corporate credit growth in the first quarter (Q1) of the current financial year (FY26).
HDFC Bank’s corporate & other wholesale advances portfolio nudged up 1.7 per cent (18.7 per cent in the year ago quarter). The core NIM of India’s largest private sector bank declined to 3.35 per cent from 3.47 per cent in the year ago quarter.
ICICI Bank’s domestic corporate loan portfolio growth in Q1FY26 moderated to 7.5 per cent (10.3 per cent in Q1FY25), with its NIM declining a shade to 4.34 per cent from 4.36 per cent in the year ago quarter.
UBI’s large corporate & others portfolio growth slowed to 2.68 per cent (7.81 per cent). The public sector bank’s NIM was lower at 2.76 per cent against 3.05 per cent in the year ago quarter.
Slow down factors
Sandeep Batra, Executive Director, ICICI Bank, attributed the growth slow down in the large corporate loan book to competitive pricing as well as a bit of repayment.
“Corporates have multiple sources of funding. They have got, of course, equity market and large internal accruals… and that becomes their first priority for funding. And there are bond markets and banks. So all corporates will like to take a judicious view on where they want to get funding from. And from our perspective, it has to meet both the credit and profitability filters. So, as long as that is met, we are happy to lend,” said Batra.
Ramasubramanian S, Executive Director, UBI, observed that the repo rate cuts have been passed on to 46 per cent of the Bank’s loan book, which is linked to the external benchmark lending rate (EBLR).
So, to protect the margin, the Bank has to ensure that its low-cost advances are not renewed or refinanced, he said in an analyst call.
Even as the focus is on retail and MSME advances continues, Ramasubramanian is hopeful that once the Bank is able to reduce its cost of deposit to a large extent, it will step up corporate lending and show a good growth.
Sanjay Rudra, Executive Director, UBI, underscored that on account of the ongoing rate war in the corporate loan market, it is a challenge as to what sort of portfolio the Bank should build and at what pricing.
“And we have taken a conscious call on the corporate loan portfolio…We don’t want to take on any advances where the Bank may incur a loss in the future. That is why the growth is slightly muted,” he said.
Published on July 20, 2025
