Jefferies Projects RBI Rate Hike in December as Banking Sector Sees Strong Credit Growth and Moderating Liquidity

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. The report also expects the Reserve Bank of India (RBI) to raise the repo rate by 25-50 basis points at its upcoming December monetary policy meeting.

The brokerage anticipates that the RBI's December 4, 2026, Monetary Policy Committee (MPC) meeting will provide a window for a rate hike as system liquidity surplus moderates. It expects the move to occur after Diwali and ahead of the February 2027 Union Budget and March 2027 state elections. The report noted that average system liquidity surplus moderated to more than ₹2 trillion in October 2026, as the central bank absorbed excess liquidity through variable rate reverse repo operations (VRRR), open market operations (OMOs), and tighter daily cash reserve ratio (CRR) requirements.

Meanwhile, bank credit growth remained strong at around 18 per cent year-on-year in October 2026, supported primarily by lending to corporates and the agricultural sector. Corporate credit growth stood at 24 per cent, while agricultural credit grew by 20 per cent. 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 may also help companies access alternative sources of funding, including bonds and external commercial borrowings (ECBs), rather than relying entirely on bank loans.

The brokerage projects that bank credit growth will ease to 14-16 per cent by March 2027 and around 13 per cent by March 2028. This moderation is expected to support the loan mix of banks while improving net interest margins and return on assets.

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. Jefferies stated that stronger FCNR-B inflows and improved liquidity could support lower wholesale term deposit rates, while retail savings account rates have remained largely unchanged alongside selective increases in term deposit rates by some banks.

"The projected moderation in credit growth alongside easing oil prices and bond yields presents a balanced outlook for the banking sector. As liquidity tightens and the central bank contemplates rate adjustments, financial institutions will need to focus strategically on their loan mix and deposit mobilization to sustain profitability and manage margins effectively in the coming quarters." — Dr. Shishir Gupta, Founder & CEO, StartupLanes