State-run banks successfully offset margin pressure in the third quarter by implementing strategic measures including shedding high-cost bulk deposits, increasing retail advances and reducing lower-yielding government company loans. According to The Economic Times, seven out of eight public sector banks that released quarterly results so far held on to or improved margins from the previous three months, helping them maintain profitability despite a challenging macro environment. Kolkata-based UCO Bank posted the biggest quarter-on-quarter improvement in NIM - up 18 basis points or 0.18 percentage point - while Mumbai-headquartered Bank of India was next with a 16 basis points gain. NIM, a key matrix to measure a bank's profitability, is the difference between the interest earned on loans and cost of funds.
Bank of India shed some loans from low-margin, higher-rated companies including a few government-owned ones, repriced bulk deposits at lower rates and continued growing its higher yielding retail loan portfolio to improve NIM, as reported by The Economic Times. Chief executive Rajneesh Karnatak explained these measures at an earnings conference. The bank's NIM improved to 2.57% in December 2025 from 2.41% in September, demonstrating the effectiveness of their strategic approach to margin management through selective lending and deposit repricing strategies.
Union Bank of India focused on reducing cost of funds by shedding bulk deposits during the quarter. According to The Economic Times, Union Bank chief financial officer Avinash Prabhu said the lender reduced close to ₹33,000 crore of bulk deposits during the quarter, which helped it protect NIM. Bulk deposits as a percentage of total deposits came down to 21% in December 2025 from 23% three months prior and 26% a year earlier. As a result, Union Bank's NIM improved to 2.76% in December 2025 from 2.67% as of end-September. Prabhu explained that "the drop in cost of funds has to be higher than the drop in yield on advances due to the falling rates." This along with growth in the higher-yielding RAM (retail, agriculture and MSME) advances helped the bank improve margins compared to the quarter ended September.
Banks strategically increased their focus on retail, agriculture and MSME (RAM) advances to improve profitability. As reported by The Economic Times, Union Bank's CFO explained that the strategic focus on "growth in the higher-yielding RAM advances helped the bank improve margins compared to the quarter ended September." Indian Bank CEO Binod Kumar said the Chennai-based bank maintained its share of low-cost current and savings accounts during the quarter at 39%, which helped maintain NIM. The bank also increased the share of higher-yielding RAM advances, particularly from sectors like MSMEs which offer better yields.
Public sector banks also optimized their lending portfolios by reducing exposure to low-yielding corporate loans while increasing focus on higher-margin sectors. According to The Economic Times, Indian Bank CEO Binod Kumar said the bank "shed some low-yielding advances of top-rated companies both from the public and the private sector and increased the share of higher-yielding RAM advances, particularly from sectors like MSMEs which are higher yielding." This strategic shift helped banks maintain profitability despite the challenging interest rate environment and falling rates across the banking sector.