Indian private sector banks are strategically shifting toward retail lending to counter the downward pressure on their net interest margins (NIMs), according to a report from S&P Global Market Intelligence. To reverse margin compression, lenders are prioritizing higher-yielding consumer loans while taking advantage of central bank incentives on foreign currency deposits to optimize funding costs.
This strategic pivot is already reflected in major bank portfolios, with retail assets comprising 52% of HDFC Bank’s total loan book and Axis Bank recording an 18% surge in retail disbursements over the last three quarters. Parallelly, institutions are targeting non-resident Indian (NRI) foreign currency deposits to build a lower-cost, stable funding foundation. Kotak Mahindra Bank has reported robust appetite for these deposits, which ICICI Bank CFO Anindya Banerjee noted offer a competitive financing source to back future lending expansion. However, ICICI Bank cautioned that while these foreign currency inflows are cost-effective, there will be an inevitable lag before the financial benefits fully materialise across their liability books.
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