Structural deposit pressure off Indian banks; thanks to RBI's liquidity steps: Fitch
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Since January, the RBI has pumped roughly Rs 5.6 trillion, equivalent to about 2% of total banking system assets, into the financial system via government securities purchases. This resulted in a liquidity surplus since March that has sharply softened funding conditions across the sector.
This, Fitch said, has helped ease the intense battle for deposits that had gripped banks over the past year. The mismatch between strong credit demand and slower deposit growth had pushed up loan-to-deposit ratios, forcing lenders to hike rates to attract savers.
But the RBI's liquidity support, alongside a 100 basis point cut in the cash reserve ratio (CRR), set to unlock another Rs 2.7 trillion in phases, has begun reversing that strain. Fresh deposit costs are already trending lower.
Fitch still expects banks' net interest margins to shrink by 30 basis points in FY26, as a large chunk of outstanding loans get re-priced downwards. However, margin pressure is likely to ease in FY27, as deposit costs fall further and the CRR cut starts delivering longer-term benefits.
Loan growth for FY25 is pegged at 11%, just above the estimated 9.8% nominal GDP growth, suggesting growing appetite for risk among lenders.
Still, Fitch warned that the relief may be short-lived if the RBI is forced to pull back liquidity to counter inflation or stabilise the rupee. Such a move could push funding costs higher once again and eat into margins.
In short, while the RBI's liquidity easing has brought meaningful short-term relief, the durability of these gains depends on broader economic stability and continued policy support.
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