Banking system may face near-term margin pressures, says RBI report

Lower NIMs, slow credit growth, and high-cost deposits likely to add to its woes

The Indian banking system, although resilient, could face near-term pressure on its margins due to an easing monetary policy, slowing credit growth, and a negative credit impulse as well as a shift in banks’ liability profiles, with the share of higher-cost term deposits and certificates of deposit (CDs) rising relative to low-cost current account and savings account (CASA) deposits, the Reserve Bank of India (RBI) said in its Financial Stability Report.

 

According to the RBI, the easing monetary policy cycle could impact banks’ net interest margins (NIMs) as a growing share of the loan book is linked to the external