Indian banks have entered a challenging phase — for the first time in 13 quarters, their operating profits are under significant strain. During the July-September quarter, banks collectively reported a 1 % year-on-year decline in pre-provision operating profit (PPOP), sliding to about ₹1.5 lakh crore, as loan yields fell faster than deposit costs.
The squeeze stems largely from an environment where lending rates are being repriced downward quickly, while funding costs — especially for deposits — remain sticky. That mismatch is eroding net interest margin (NIM) for many lenders.
In normal times a drop in PPOP signals deeper structural issues: asset quality pressures, increased competition in credit, or even a slowdown in business growth. Analysts note that margin compression could curtail banks’ ability to invest in growth, and may push some banks to rely more on fee-income or non-interest revenue to maintain profitability.
For investors and market watchers, the key questions are whether the margin pressure is temporary — driven by a short-term funding-cost lag — or if it heralds a broader earnings challenge for the banking sector in the coming quarters.
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