MUMBAI: Indian Bank expects steady balance-sheet growth in fiscal year 2026-27 (FY27) but warned that margins could remain under pressure as deposit costs stay elevated and funding growth lags credit demand.
“The cost of deposit is not going down, that is the major concern. Credit growth has been outpacing deposit growth since the last so many quarters, so there, of course, will be some bearing on cost of deposit,” managing director and chief executive officer Binod Kumar said.
The bank’s ability to cut deposit rates is constrained by the need to keep deposit mobilization in line with credit growth. “If credit growth is strong, bulk (deposits) we are getting at a higher rate, so then there is no point in cutting rates on retail term deposits,” Kumar told Mint.
As a result, net interest margin (NIM) could compress to 3.15-3.25% in FY27 from 3.24% in FY26. The outlook also reflects expectations of rising inflation and the possibility of a policy rate hike, which could keep funding costs elevated even as the bank avoids “aggressive growth”.
NIM for the March quarter stood at 3.23%, down from 3.28% in the preceding quarter and 3.37% a year earlier.
Loan growth to slow
“We are not pursuing very aggressive growth. Although we have grown credit and deposits around 12-13%, we are keeping guidance of advances at 11-13% and deposits at 9-10% for FY27,” Kumar said.
Advances rose 13.4% in FY26 to ₹6.7 trillion as of 31 March, 2026, while deposits grew 12.3% to ₹8.3 trillion.
The more modest outlook reflects caution in lending to micro, small and medium enterprises (MSMEs) amid the West Asia crisis, and an expected slowdown in retail loan growth across the sector.
Kumar said housing loans should continue to see strong demand despite rising property prices, supported by loan rates starting from 7.15%. He expects growth in gold loans to moderate after last year’s sharp rise in gold prices, though the segment continues to see “good traction”, and said vehicle loans are also seeing good demand.
He is more optimistic on corporate lending, where growth picked up to over 9% in FY26 from 2% a year earlier. Demand remains uneven, but government-led capital expenditure is supporting activity in sectors such as ports, battery power storage, data centres, warehousing and renewable energy, including solar power and electric vehicles.
Low-cost deposits
To manage funding costs, the state-owned lender is stepping up efforts to grow low-cost current account and savings account (Casa) deposits.
“Last year, we opened more than 300,000 salary accounts, which give you opportunity for cross-selling. We have also been able to convert around 3.3 million inoperative accounts to operative accounts,” he said, adding that this cumulatively accounted for ₹4,685 crore increase in deposits. The bank also distributed 3,84,000 POS (point-of-sale) machines to merchants, resulting in current account deposit accretion of ₹7,800 crore.
“Instead of relying on bulk Casa or government deposits, we have also started going towards these smaller deposits where we can enjoy salary and float,” Kumar said, adding that on the current account side the focus is also on “small floats” such as escrow accounts and TRA (Trust and Retention Accounts). “We are focussing on the collection accounts.”
Savings account deposits rose 6.3% sequentially and 10.6% year-on-year to ₹2.7 trillion, while current account deposits increased 6% on quarter and 10.9% on year to ₹44,450 crore. Casa deposits stood at ₹3.1 trillion, or 39.7% of total deposits, compared with 39.1% in the previous quarter and 40.2% a year earlier.