Indian banks could receive some relief on profitability as declining crude oil prices and lower bond yields improve their operating environment. However, credit growth may gradually slow over the coming quarters. According to a report by global brokerage firm Jefferies, the Reserve Bank of India (RBI) could increase the repo rate by 25–50 basis points at its December 2026 monetary policy meeting.
The brokerage expects the RBI’s Monetary Policy Committee (MPC) meeting scheduled for December 4, 2026, to provide an opportunity for a possible rate hike as surplus liquidity in the banking system gradually declines. The expected timing would be after Diwali and before the Union Budget in February 2027 and state elections in March 2027.
Jefferies reported that the average surplus liquidity in the banking system moderated to more than Rs 2 trillion in October 2026. The RBI has been managing excess liquidity through variable rate reverse repo (VRRR) operations, open market operations (OMOs) and tighter daily cash reserve ratio (CRR) requirements.
The brokerage highlighted the changing liquidity conditions in its banking sector assessment, indicating that a December 2026 rate hike is likely.
Bank Credit Growth May Slow to 13–16%
Despite the possibility of slower growth ahead, bank lending remained strong in October 2026, with credit growth reaching approximately 18% year-on-year.
Corporate lending recorded growth of 24%, while agricultural credit increased by 20%, according to the Jefferies report.
However, the brokerage expects lending growth to lose some momentum in the coming quarters. Lower crude oil prices, declining bond yields and pressure on the Indian rupee could reduce companies’ working-capital requirements.
Businesses may also explore alternative funding options, including corporate bonds and external commercial borrowings (ECBs), which could reduce their dependence on traditional bank loans.
Jefferies expects overall bank credit growth to moderate to 14–16% by March 2027 and further decline to approximately 13% by March 2028.
According to the brokerage, slower credit expansion could help banks improve their loan portfolios, strengthen net interest margins (NIM) and support returns on assets (ROA).
Deposit Growth Improves as FCNR-B Inflows Increase
The deposit situation has also shown improvement, supported by increased inflows under the Foreign Currency Non-Resident Bank (FCNR-B) deposit scheme.
Bank deposit growth reached 17% year-on-year as of October 15, 2026, compared with 13% in June 2026.
Jefferies believes stronger FCNR-B deposits, combined with improved liquidity conditions, could help banks reduce wholesale term deposit rates.
Retail savings account interest rates have largely remained stable. However, some banks have increased the interest rates offered on term deposits.
Improved deposit growth could provide banks with better funding support and help manage their overall borrowing costs.
Indian Banking Stocks: What Lies Ahead?
The Jefferies report also highlighted the performance of Indian financial sector stocks in October. These stocks performed better than their global counterparts during the month, although they remained behind the Nifty index.
The brokerage believes that softer crude oil prices and declining bond yields could improve the banking sector’s funding environment. Lower working-capital requirements may also reduce the demand for bank credit.
Although lending growth is expected to moderate, the changing credit mix could support improvements in net interest margins and overall profitability.
Overall, Jefferies expects Indian banks to benefit from improving funding conditions and lower borrowing pressures, even as credit growth gradually slows. The RBI’s December 4, 2026, monetary policy decision will also be an important development for the banking sector.