Now Reading: Rising deposit costs squeeze bank margins, rates may stay narrow
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Rising deposit costs squeeze bank margins, rates may stay narrow
Rising deposit costs squeeze bank margins, rates may stay narrow
Reserve Bank of India Governor Sanjay Malhotra flagged a decline in banking system net interest margins to 3.21% in June 2026 from 3.26% a year ago, Livemint reports. Bank credit grew 17.7%…
The Story in Brief
Reserve Bank of India Governor Sanjay Malhotra flagged a decline in banking system net interest margins to 3.21% in June 2026 from 3.26% a year ago, Livemint reports. Bank credit grew 17.7% year-on-year while deposits rose only 12.7%, leaving a 5 percentage point gap, according to CareEdge Ratings. Private banks faced sharper funding pressure, with their fresh lending-deposit spreads narrowing 25 basis points in June as deposit rates rose 25 bps. Lenders expect margins to remain under pressure until deposit growth catches up, though liquidity improved in July with surplus rising to Rs 2.5 lakh crore.
The Indian Opinion
The focus on private banks' sharper spread compression feeds a narrative that they are less efficient than public sector peers. The real story is simpler: all banks are competing harder for the same limited deposits, and private banks are raising rates faster because they have to. The notion that RBI should cut rates to ease margin pressure is misplaced, rates are already low, and deposit growth is a structural gap. The test will be whether deposit growth can reach 15% within two quarters, or the gap widens further.
Sources (3): bfsi.economictimes.indiatimes.com, bfsi.economictimes.indiatimes.com (2), livemint.com
This story was synthesised by AI from the 3 sources linked above.
Updated: this story now draws on 3 sources.
