PNB looks to cheaper deposits to defend margins after rate cuts bite

Subscribe to enjoy similar stories. MUMBAI: Punjab National Bank, or PNB, is preparing the ground for further deposit rate cuts as pressure on margins intensifies, betting that cheaper deposits are now the best way to protect profitability as earlier policy rate cuts have already pushed lending yields lower. The state-owned lender cut deposit rates by about 20 basis points (bps) across tenures effective 1 January 2026 and sees scope to go further, managing director and chief executive Ashok Chandra said.

The reductions are expected to begin lowering PNB’s cost of deposits from the March quarter, at a time when loan yields have fallen much faster than funding costs. “As of now also, hardly 80 bps rate cut has happened in any segment in our deposit. So there is still enough room.

We will see how this situation pans out," Chandra told Mint, adding that the bank's asset-liability committee will assess the impact of the latest rate cut at the end of the month and then take a view on future deposit rate cuts. “(If the repo rate remains the same) we can definitely look for that," he said. The urgency comes from a visible squeeze on margins.

PNB’s domestic net interest margin (NIM) fell to 2.65% in Q3FY26, down from 2.72% in the previous quarter and 3.09% a year earlier. While the domestic cost of deposits eased only marginally to 5.1% from 5.18% in the September quarter, yields on advances dropped more sharply to 7.8% in Q3 from 8.01% in the previous quarter and 8.5% a year ago. Chandra said deposit rate cuts had been limited so far because of a “dynamic" market environment and the need to balance depositor interests, but acknowledged that margin strain is now pushing the case for faster repricing.