Indian banks brace for higher rates, rising funding costs and deposit challenges

During the first day of the 2026 BFSI Insight Summit at Mumbai’s Jio World Convention Centre, senior banking executives outlined the challenges of an impending higher-rate environment. SBI Chairman C S Setty said the Reserve Bank of India may raise rates by 50 basis points before December, which could curb borrowing in rate-sensitive segments. Axis Bank MD and CEO Amitabh Chaudhry warned that tighter liquidity and rising incremental deposit rates would push up banks’ funding costs, even as infrastructure and working-capital demand sustains lending.

Uday Kotak described the RBI’s FCNR(B) deposit scheme as a strong hedge but estimated total repayments, including interest, could reach $160-170 billion, urging policymakers to use the next three to five years to bolster the economy. The summit also highlighted changing household savings behaviour that makes deposit mobilisation more difficult, and private-sector leaders urged a shift from AI pilots to full-scale deployment backed by robust data and cybersecurity.