Axis Bank shares plunged 5.6% on Monday, wiping out about Rs 23,000 crore in market capitalisation. HDFC Bank declined 4.56%, translating into a loss of roughly Rs 57,500 crore, while Kotak Mahindra Bank fell 3%, eroding another Rs 10,300 crore. Together, the three lenders lost approximately Rs 90,800 crore in market value.
The decline in these banks' shares was not indiscriminate, as ICICI Bank gained nearly 1%, highlighting investor focus on the quality and profitability of growth rather than credit expansion alone. Analysts noted that while corporate lending is accelerating, retail credit remains subdued, impacting net interest margins (NIMs) as banks rely more on costlier term deposits and borrowings.
A review by Equirus Securities found that large private banks, excluding ICICI Bank, reported a mid-teen basis-point sequential decline in margins. This was mainly due to faster growth in corporate loans and compressed spreads. Corporate credit was supported by higher working capital demand and a shift from bond market funding to bank borrowing.
HDFC Bank, India's largest private sector lender, saw its credit growth improve to 15.6% year-on-year, led by corporate, business banking, and small business loans. However, its profitability was impacted by a decline in loan yields and a lower share of low-cost deposits, compressing margins. HDFC Bank's profit after tax of Rs 19,100 crore missed estimates by 3% due to margin compression and higher provisions.
Axis Bank delivered the strongest credit growth among the three lenders, with advances growing 19% year-on-year. However, its margin contracted 16 basis points sequentially to 3.46%. The management expects margins to recover towards its through-cycle target of 3.8% over the next 12–15 months.
Kotak Mahindra Bank's profit after tax increased 26% year-on-year, but core pre-provision operating profit fell 4% from the previous quarter. Its net interest margin contracted around 14 basis points, with advances and deposits trailing system growth.
ICICI Bank shares gained nearly 1% as investors rewarded its balanced credit growth and strong core profitability. The bank reported a profit of Rs 14,800 crore, beating estimates by 12%, with a return on assets of 2.49% and an improved net interest margin of 4.36%.
Background
The Indian banking sector has been under pressure due to rising interest rates and changing deposit dynamics. The recent market movements reflect investor concerns over profitability amidst rapid credit growth, especially in the corporate segment.
The key debate for investors now centers on the trajectory of NIM recovery in the second half of FY27, the durability of retail/unsecured loan growth, and whether corporate capex will sustain the current loan-growth momentum.
