Banks’ margins to remain under pressure amid robust loan growth, high cost of funds

Between February and December 2025 last year, the Reserve Bank of India cut the repo rate by a total of 125 bps. Banks in India bring down interest rates in line with benchmark rates such as the repo, driving an industry-wide reduction in loan rates, even as deposit rates are raised only for fresh deposits and renewals, which comes with a lag. The higher transmission in lending rates is reflected in the fact that banks’ average outstanding loan rates fell to 8.99% in March, down 7 bps on quarter and 78 bps on year. In comparison, average rates on outstanding deposits declined to 6.62%, 6 bps lower on quarter and 49 bps lower on year, as per latest RBI data.