As RBI turns dovish, ICICI Bank flags potential margin impact in the long haul

ICICI Bank reported an 18 percent year-on-year increase in net profit to Rs 12,629.58 crore

As India’s second-largest private lender, ICICI Bank reported another steady quarter, the management noted that they expect some impact on margins going forward as the Reserve Bank of India (RBI) moves towards a rate-cutting cycle.

“Loan repricing happens quickly, but deposits take longer to adjust. With growing expectations of a rate cut and deposit rates already starting to fall, we will need to think carefully about our long-term strategy. There could be some impact on margins, as several factors will influence the outcome. Overall, we will stay focused on risk-adjusted pre-provision operating profit (PPOP) and continue with the growth margins we have already achieved,” the management said during their earnings call.

In April, the RBI announced its second consecutive 25 basis points (bps) cut in the repo rate, bringing it down from 6.25 percent to 6 percent. Recent inflation data for March shows signs of easing, which is expected to support the RBI’s dovish stance further. Some brokerages now expect the RBI to cut rates by as much as 50 bps across June and August.

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Typically, when rates are cut, banks reduce deposit rates as well, which can lead to lower inflows since depositors may look for better returns elsewhere. At the same time, margins may either narrow or expand depending on how fast banks adjust their lending rates compared to deposit rates.

ICICI Bank reported an 18 percent year-on-year increase in net profit to Rs 12,629.58 crore, surpassing market expectations. Its net interest income (NII) also rose by 11 percent YoY to Rs 21,193 crore. Margins remained stable, with net interest margin at 4.41 percent in Q4FY25, compared to 4.40 percent in Q4FY24.

Asset quality also remained strong. The bank’s net non-performing asset (NPA) ratio stood at 0.39 percent for the quarter, slightly down from 0.42 percent in the previous quarter. Similarly, the gross NPA ratio improved to 1.67 percent in Q4FY25 from 1.96 percent in the previous quarter.