Jefferies report highlights potential margin support for Indian banks due to easing oil prices and bond yields, while predicting an RBI rate hike of 25-50 basis points in December as credit growth moderates.
Banking Sector Outlook and RBI Rate Expectations
Indian banks could see support to their margins from easing crude oil prices and bond yields, even as credit growth is expected to moderate over the coming quarters, according to a report by global brokerage Jefferies, which also expects the Reserve Bank of India (RBI) to raise the repo rate by 25-50 basis points at its December monetary policy meeting.
The brokerage expects the RBI’s December 4, 2026, Monetary Policy Committee (MPC) meeting to provide a window for a rate hike, as system liquidity surplus moderates. It expects the move to come after Diwali and ahead of the February 2027 Union Budget and March 2027 state elections. The report said average system liquidity surplus moderated to more than Rs 2 trillion in October 2026, as the RBI absorbed excess liquidity through variable rate reverse repo operations (VRRR), open market operations (OMOs) and tighter daily cash reserve ratio (CRR) requirements. “Liquidity moderates; Dec-26 rate hike likely,” the brokerage said in its assessment of the banking sector.
Credit Growth Trends and Liquidity
Meanwhile, bank credit growth remained strong at around 18 per cent year-on-year in October 2026, supported by lending to corporates and the agricultural sector. Corporate credit growth stood at 24 per cent, while agricultural credit grew 20 per cent, according to the report. However, Jefferies expects the pace of bank credit growth to moderate as easing oil prices, bond yields and pressure on the Indian rupee could reduce working-capital demand. These factors could also help companies access alternative sources of funding, including bonds and external commercial borrowings (ECBs), instead of relying entirely on bank loans.
The brokerage expects bank credit growth to ease to 14-16 per cent by March 2027 and around 13 per cent by March 2028. It said this moderation could support the loan mix of banks and improve net interest margins (NIM) and return on assets (ROA).
Deposit Growth and Market Performance
On the deposit side, growth improved following strong inflows under the Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme. Bank deposit growth increased to 17 per cent year-on-year as of October 15, 2026, compared with 13 per cent in June 2026. The brokerage said stronger FCNR-B inflows and improved liquidity could support lower wholesale term deposit rates. Retail savings account rates have remained largely unchanged, while some banks have increased their term deposit rates.
The report also noted that Indian financial stocks outperformed their global peers in October, although they underperformed the Nifty. Jefferies said easing oil prices and bond yields could help moderate working-capital demand and improve the funding environment for banks. The expected moderation in credit growth could also support a better loan mix and profitability. (ANI)
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