Banking & Markets Morning Brief | July 24

The spotlight in the banking sector has shifted decisively from loan growth to profitability. As the June quarter earnings season gathers pace, investors are beginning to ask a more difficult question: can banks protect margins in an environment of slower retail credit growth and intense competition for deposits?

The latest RBI liquidity data offers a clue. Banking system liquidity has slipped back into a marginal deficit, with the shortfall narrowing to around ₹2,884 crore, the lowest since late June. While the deficit is modest, it suggests liquidity conditions are no longer as comfortable as they were a few weeks ago. Market participants attribute the tightening to a combination of healthy credit demand and the RBI’s foreign exchange operations. If the trend persists, funding costs are likely to remain elevated, keeping pressure on banks’ net interest margins.

That pressure is already visible in earnings. Large private sector lenders are reporting softer retail loan growth while relying increasingly on corporate lending to sustain overall credit expansion. The market is paying less attention to headline profit numbers and more to management commentary on deposit mobilisation, loan pricing and margin outlook for the rest of FY27.For NBFCs, attention remains on the RBI’s proposal to allow eligible finance companies access to the term money market.

The move, if implemented, would broaden funding avenues and reduce dependence on bank borrowings, providing a structural boost to liquidity management for highly rated NBFCs.The fintech space continues to be shaped by regulation rather than funding. The RBI’s sustained push to tighten oversight of digital lending is expected to accelerate consolidation, with compliant platforms likely to emerge stronger as scrutiny of unregulated lending apps intensifies.

Markets, meanwhile, will take cues from a busy earnings calendar, movements in crude oil prices and global risk sentiment. Higher oil prices remain a concern for inflation and could influence expectations around future monetary policy.Stocks to watch today: Private sector banks for management commentary on margins and deposits; NBFCs for any regulatory developments on funding; and oil-sensitive sectors such as aviation, paints and chemicals if crude prices remain firm.

The defining theme for Indian banking is no longer whether credit will grow. It is whether banks can sustain profitability in an environment where funding has become more expensive, margins are narrowing and competition for deposits is intensifying.