State-run bank chiefs see credit growth holding firm despite margin pressures

What happened

Six state-run banks expect loan growth to hold in the second half of FY27 despite pressure on net interest margins, which means the gap between interest earned and interest paid, from deposit costs. They cite demand from retail, agriculture, small businesses and companies, plus festive borrowing, with growth estimates of 11% to 15%.

Confirmed

Global impact / market context

If these banks keep lending at 11% to 15% while deposit costs stay high, profit per sale could shrink because floating-rate loans reprice faster than deposits. Investors may weigh loan growth against weaker margins, and funding competition could limit how much cheap cash is available.

Analyst inference

The six lenders hold deposits of Rs.64.5 trillion, about 41% of the public sector bank deposit base of Rs.156.3 trillion. That makes their lending plans a large part of overall bank credit. Festive demand supports near-term volumes, while term deposit competition and foreign currency deposits shape funding costs.

Analyst inference

What to watch

1. Watch whether actual loan growth lands within the stated 11% to 15% range for these six banks in the second half of FY27, since management confidence does not guarantee outcomes. Confirmed
2. Track whether banks slow lending or raise deposit rates if funding costs keep rising, which would show the trade-off between protecting profitability and sustaining loan growth. Proposed
3. Monitor deposit growth and the cost of term deposits at these lenders, because deposit costs adjust with a lag and could pressure net interest margins in coming quarters. Analyst inference

Evidence

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