Indian Banking Sector Feels Q1 Pressure, But Long-Term Outlook Strong: SEBI RA Cashvisory

India’s banking sector saw a soft patch in the first quarter (Q1), with muted profit growth and margin strain across top lenders.

SEBI-registered analyst Cashvisory, tracking Bank Nifty constituents, noted that average profit growth among major banks slowed to around 5–6% year-on-year, marking the weakest performance in nine quarters.

Cashvisory attributed the main drag to shrinking net interest margins (NIMs), as the cost of deposits went up. 

Lending growth was slower as well, particularly for the corporate and SME segments.

 The competition for deposits was also more intense, compressing margins across the board.

Despite the near-term strain, Cashvisory pointed to several structural positives. 

India's credit-to-GDP ratio of around 55% still leaves room for significant headroom for long-term credit expansion, the analyst noted. 

The analyst added that digital banking and fintech partnerships were also enhancing operational efficiency and reach.

Asset quality continues to improve, with gross NPAs down and slippages low. Capital adequacy too is healthy across the top banks and should support the next phase of loan growth. 

Rural and MSME loans are also seeing good momentum and may contribute to incremental value creation in the long term.

Despite Q1 results in the banking index being dragged down by higher funding costs and margin compression, Cashvisory sees the long-term outlook as remaining positive, supported by macro tailwinds, robust balance sheets, and continued digitisation.

On Stocktwits, retail sentiment for NIFTYBANK was ‘bearish’ amid ‘normal’ message volume.

The Nifty Bank index has gained 11% year-to-date (YTD).

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