Indian commercial banks are posting strong headline profits, but beneath the surface, a combination of rising costs and regulatory squeeze is hampering their ability to enhance profitability.
While gross non-performing assets (NPAs) are near multi-decadal low and credit demand remains robust, the golden era of supercharged banking profitability is hitting a hard structural ceiling.
The avenues for making high-margin returns are quietly drying up, and that is beginning to show in the numbers.
Net profit growth of scheduled commercial banks moderated from 14.67% in 2024-25 to 6% in 2025-26, alongside a 20-basis-point compression in net interest margin (NIM), from 3.46% to 3.26%, indicating growing pressure on profitability.
The stress begins on the liability side of the balance sheet with the visible erosion of cheap core funding. In a bid to manage their profit margins, banks have steadily brought down interest rates on savings deposits.