Private Sector Banks Better Placed To Gain From RBI's Repo Rate Cut: Goldman Sachs' Rahul Jain

The 25-basis-point repo rate cut announced by the Reserve Bank Of India's Monetary Policy Committee on Wednesday may give some support to banking sector margins, according to Rahul Jain, head of APAC financials and India equity research at Goldman Sachs. Jain highlighted that private banks are likely to do better than public sector banks in the coming months.

Speaking to NDTV Profit after the MPC announcement, Jain said the move was broadly anticipated and will gradually impact banks’ profitability. “This clearly would have immediate bearing for the lender's profitability because a significant part of the lender's portfolio is linked to the repo rate,” he noted, with yields expected to reset over the coming quarter.

However, Jain cautioned that deposit rate pressures remain sticky—particularly in retail deposits—due to elevated loan-to-deposit ratios and the competitive chase for funds. 

“The liquidity measure that the RBI has taken would affect the bulk deposits much more than the retail deposit rates,” he said, predicting that retail deposit rates could take another quarter or two to start declining meaningfully. 

“Retail deposit rates would come down at a lesser pace versus the trajectory of policy rates.”

This divergence implies a short-term squeeze on bank margins, but Jain expects this pressure to bottom out by the second quarter of fiscal 2026. “We see the margins for the sector bottoming out some time in the second quarter of the financial year, and thereafter, it should stabilise to move up,” he said.

Jain pointed out that margins will be influenced not just by funding costs but also by shifts in loan mix and asset quality dynamics. 

“If the asset quality starts to bottom out, that will also reduce the pressure on the interest income,” he said.

Banks with exposure to higher-yielding segments like unsecured and commercial retail loans—areas where private banks typically dominate—are better positioned for a rebound. 

“Players who are exposed to the unsecured segment or the commercial retail segments, subject to how the asset quality is panning out, should be able to do better over the next couple of quarters,” he observed.

On credit growth, Jain expects a gradual pick-up as regulatory curbs on certain segments ease and the economy stabilises. 

He forecasts system-wide credit growth of 10–12% in fiscal 2026, with early momentum building in working capital loans and a potential rebound in mortgages, aided by the recent personal income tax cuts. However, Jain remains cautious, highlighting that household leverage and muted private capital expenditure will keep overall growth moderate in the near term.

“One is the household, which has a higher leverage in this cycle. On the corporate side, the private capex activity is slower. We are seeing some early green shoots, but still difficult to call out to what degree it will contribute to the credit growth in the system,” he explained.