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Margin pressure for Indian banks could increase, as the Reserve Bank of India's (RBI) flexibility to inject local-currency liquidity into the banking system has narrowed amid efforts to contain rupee volatility, a report said on Thursday. However, banks' direct foreign-currency risks remain limited, Fitch Ratings said in a report. "Sector margins could decline by 20-30 bps below our current 3.1 per cent forecast for the financial year ending March 31, 2027 (FY27) if higher funding costs linked to Middle East tensions persist. This could reduce operating profit/risk-weighted assets (RWAs) - our core earnings metric - by around 30-40bps, from our 2.5 per cent forecast for FY27," it said. The base case assumed deposit costs would decline in FY27 as accommodative liquidity would enable further transmission of the RBI's 125 bps of policy rate cuts since December 2024; only 44 bps have been passed through to deposit rates as of January 2026, due to intensified competition for deposits wit