How Indian Banks Performed in Q4FY25 and Where They’re Headed Next

As part of our Q4FY25 rebalance review, we looked closely at sector-level trends. This one’s focused on Indian banks, and while the financials held steady, it was the strategic shifts (stake sales, leadership exits, and product recalibration) that stood out more than the results themselves.

🔍 The Snapshot

Banks delivered a resilient set of numbers this quarter:

• Net Interest Margins (NIMs) were stable or improved
  
• Loan books grew in double digits across most large banks
  
• Asset quality continued to improve; bad loans trended down
  
• Deposit growth was solid, but CASA trends diverged
  
• Unsecured lending saw cautious recalibration
  
• Strategic moves like SMBC’s investment in YES Bank and leadership exits at Federal, hint at deeper transitions

🧮 Net Interest Margins: Held Up, But May Have Peaked

Loan mix optimisation, lower slippages, and tax refunds helped private banks hold margins:

• Kotak: 4.97% | ICICI: 4.41% | KVB: 4.05% | AU SFB: 5.8%
  
• Axis: 3.97% | HDFC: 3.46%
  
• Pressure was visible at SBI (3%), BoB (2.86%), and Canara (2.73%) due to rising funding costs.

📈 Credit Growth: Broad-Based and Retail-Heavy

Retail and MSME lending continued to drive overall growth:

• ICICI, BoB, Canara, KVB, Kotak: >12% YoY credit growth
  
• AU SFB: 8% QoQ, led by commercial and retail
  
• Federal Bank: Growth across CVs, SMEs, and cards (12% YoY)
  
• SBI missed guidance due to PSU prepayments

💰 Deposits & CASA: Growth Held, But Divergence Emerged

Deposit growth was strong (10–15% YoY), but CASA ratios showed pressure:

• Kotak (43%), Axis (41%), SBI (40%) held strong
  
• HDFC (35%), Federal (30.2%), Canara (31.2%), KVB (27.3%) trailed
  
• AU SFB’s CASA dropped to 29.2% despite overall deposit growth
  
• Credit-to-deposit ratios remained healthy:
  
  • HDFC at 96.5%, others ranged 70–86%
    
  • SBI (69.7%), Federal/KVB (82.8%) stayed below stress levels

🛡️ Asset Quality: Continued Gradual Improvement

Bad loans trended lower across most banks:

Slippages remained in check, barring minor spikes at Canara and Axis.

Gross NPA (Non-Performing Assets) reflects the total value of loans that have turned bad, while Net NPA accounts for expected recoveries and provisions, showing the actual risk still on the bank’s books.

💳 Unsecured Lending: Recalibration in Progress

Lenders are now more cautious:

• Kotak, AU SFB, and Federal pulled back on BNPL, MFI, and personal loans
  
• Federal resumed credit card growth after regulatory fixes
  
• AU SFB’s restructured card book is expected to break even in 1–2 years
  
• Kotak is working on new unsecured launches to fill the gap

🏢 Strategy Over Stats: Notable Events This Quarter

📌 YES Bank x SMBC (May 25)

• Japan’s SMBC acquired a 20% stake in YES Bank for ₹8,889 Cr — the largest cross-border banking investment in India
  
• SBI exited partially (13.19% stake sold), along with Axis, ICICI, Kotak, and HDFC
  
• Marks a capital reset and global validation for YES Bank

📌 Federal Bank’s Moves

• Leadership Change (Apr 25):
  Shalini Warrier (ED) stepped down after over a decade, signalling a pivot in digital and retail direction
  
• Insurance Stake Hike (Mar 25):
  Increased stake in Ageas Federal Life to 30%, reinforcing its non-interest income focus

🧾 In Summary: The Numbers Were Solid, But the Signals Were Strategic

While Q4FY25 results held steady across most banks, the bigger message was this:

• Global capital is looking at Indian banks
  
• Leadership exits could signal strategic resets
  
• Lenders are now revisiting their product bets, especially unsecured credit
  

This isn’t a sector coasting on past stability — it’s repositioning for what’s next.

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