Rising deposit costs to weigh on NIMs, RoA of banks: CRISIL Ratings

CRISIL Ratings forecasts a 25-30 basis points (bps) rise in banks' cost of funds for FY25 due to continued re-pricing of term deposits at elevated rates. \r

This upward trend is expected to compress net interest margins (NIMs) by 10-20 bps to 3.0-3.1 percent from 1.3 percent in FY24, consequently moderating return on assets (RoA) to 1.1-1.2 percent. Ajit Velonie, senior director at CRISIL Ratings, highlighted that while fresh term deposit rates have stabilized, existing deposits are being re-priced higher upon renewal. \r

Despite potential interest rate cuts later in FY25, slower deposit rate adjustments are anticipated due to competitive pressures and tight liquidity conditions. This shift in banking dynamics is expected to persist into FY26, affecting both NIMs and RoA.