ICICI Bank’s margin compress signaling likely slowdown in sector

ICICI Bank Ltd.’s margins shrank in-line with expectations of analysts, adding to signs of a slowdown in India’s banking sector that sent shares of a rival tumbling in recent days.

Net interest margins, a measure of how lenders make on every loan sold, shrank to 4.43 per cent in the three months ended Dec 31, from 4.53 per cent in the previous quarter. India’s banks are facing headwinds to their profitability from their inability to mobilise low-cost deposit to fuel high demand for credit.

Net income rose about 24 per cent to 102.7 billion rupees ($1.2 billion), beating the average estimate of 99 billion rupees in a Bloomberg survey.

While earnings at Indian banks have swelled in recent quarters on surging demand for credit, the nation’s regulator is warning of a potential buildup of risks in the economy. With unsecured lending rising almost twice as fast as overall credit, the Reserve Bank of India asked banks to increase buffers for some consumer loans in November.

Shares of HDFC Bank Ltd, the nation’s largest private-sector lender, tumbled the most in more than three years on Wednesday after it posted earnings that signaled a slowdown, disappointing investors on deposits and stagnant margins.

ICICI Bank made a provision of 6.3 billion rupees toward its exposure to alternative investment funds, after the regulator issued restrictions on such investments late last year.