Lenders seek policy boost as funding costs increase

GREAT EXPECTATIONS

- KSHIPRA PETKAR

AS THE UNION Budget approaches, bankers and non-banking financial company (NBFC) leaders are calling for structural policy support to address mounting pressure on deposits, rising funding costs and the longstanding credit gap faced by micro, small and medium enterprises (MSMEs), even as credit demand in the economy remains strong.

Finance Minister Nirmala Sitharaman will present the Union Budget for 2026-27 on February 1.

For banks, the immediate challenge lies on the liability side. Deposit growth has lagged credit expansion, pushing up deposit rates and squeezing margins. “The banking industry has been facing a lower deposit growth to credit growth leading to a stress in deposit rates and NIM (net interest margin) of the banks,’ Alok Singh, head of treasury at CSB Bank, said.

Singh added that the Budget must acknowledge the structural shift of household savings to other financial avenues and respond with targeted incentives.

“An assessment of these changes, where the core deposits of banks are getting routed to other sectors, needs to be undertaken, and suitable tax incentives, along with new product lines to incentivise deposit holders, are required,” he mentioned.