More Stories

Informist, Wednesday, Jul. 16, 2025

--Fitch: RBI's liquidity infusion has significantly eased funding conditions 

--Fitch: Expect easier funding to facilitate transmission of rate cuts 

--Fitch: Expect 30 bps fall in bks' margins in FY26 as 45% of loans repriced 

--Fitch: Bks' margin pressure may ease on CRR cut, fall in deposit cost FY27 

MUMBAI – Fitch Ratings Wednesday said it expects a 30 basis points contraction in margins of Indian banks in 2025-26 (Apr-Mar), as 45% of sector loans have been repriced downward following a cut in the repo rate by the Reserve Bank of India. Margins will also be under pressure as no material improvement in the share of low-cost deposits to overall deposits is seen, it said.

However, margin pressures should moderate as deposit costs fall in FY27, helped by lower cash reserve ratio requirements, Fitch said. The report comes in the backdrop of the RBI cutting the cash reserve ratio by 100 basis points to 3% of net, and demand and time liabilities of banks in June. The cut, to be carried out in four tranches of 25 basis points each, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, RBI Governor Sanjay Malhotra had said.

Funding conditions in India have improved owing to the RBI's substantial liquidity infusions into the banking system since January, the report said. "We expect funding conditions to stay accommodating and facilitate transmission of 100 bps in rate cuts in 2025," the report said. In an interview to CNBC-TV18 on Tuesday, RBI Governor Sanjay Malhotra said that 24 basis points of rate cuts have been transmitted to bank loans till May and the rest will also align as time goes on.

Fitch said RBI aims to spur loan growth without intensifying funding cost pressures. The central bank has injected about INR 5.6 trillion of durable funding in 2025 through purchase of government securities, resulting in surplus system liquidity, the report said.

The rating agency said a reversal in the RBI's accommodative stance due to inflationary pressures or currency volatility could pressure banks' funding costs, margins, and loan growth, especially if they are forced to readjust after a sustained period of easy liquidity. However, a shift in retail savings from financial markets to bank deposits amid market volatility could support lower funding costs for banks, it said.

The profitability of banks will also be supported by higher treasury gains and better corporate loan spreads, Fitch said. "Lower interest rates could support better-than-expected asset quality, and higher loan growth if corporate capex picks up," it said.  End

Reported by Kabir Sharma

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.