RBL Bank expects its net interest margin to ease in the next quarter as foreign currency non-resident deposits continue to work through the balance sheet, even after posting a strong performance in the September quarter of 2026, chief executive R. Subramaniakumar said.
The lender reported a sharp rise in net profit for the quarter, supported by broad-based growth in core banking income and a faster expansion in the loan book. Net interest income rose 37% year on year to Rs 2,131 crore, underscoring the benefit of stronger asset growth and a healthier funding profile. Net advances increased 42%, while deposits climbed 34%, helped by FCNR(B) inflows that boosted the bank's liability franchise.
Margin Normalisation Ahead
Subramaniakumar said the bank's margins are likely to moderate in the next quarter as the full impact of FCNR deposits is reflected in the books. The comment signals that the recent deposit surge, while positive for balance-sheet growth and liquidity, may temporarily dilute yield because foreign currency deposits often carry a different cost structure and can alter the overall funding mix.
For banks, such a shift is not unusual after a period of rapid deposit mobilisation. FCNR(B) inflows can support liquidity and help fund loan growth, but they can also compress spreads if the incremental liabilities are priced above the bank's existing average cost of funds or if the asset side does not reprice as quickly. RBL Bank's guidance suggests that the current quarter may represent a peak in margin strength before the balance sheet absorbs the full effect of the new deposits.
The bank's performance nonetheless points to a business that is growing at a pace well above the broader industry average. A 42% rise in net advances indicates strong credit demand and execution across lending segments, while 34% deposit growth suggests the bank has been able to attract funding at scale. In a sector where deposit mobilisation has been a constraint for many lenders, that combination is notable.
Strong Quarter, Mixed Outlook
The September quarter numbers indicate that RBL Bank is benefiting from both volume growth and improved operating momentum. Higher net interest income typically reflects a combination of loan growth, better asset mix and funding discipline. The 37% increase in NII to Rs 2,131 crore suggests the bank has been able to expand earning assets without sacrificing too much on pricing, at least for now.
At the same time, the CEO's caution on margins highlights the trade-off between growth and profitability that many mid-sized banks face. Rapid deposit accretion can strengthen the franchise and reduce reliance on wholesale funding, but it can also create a short-term drag on spreads if the new deposits are not immediately deployed into higher-yielding assets.
Investors will likely focus on whether the bank can sustain its loan growth while keeping credit costs and funding costs under control. The next quarter will be important in assessing whether the recent deposit inflows are a one-off benefit or the start of a more durable liability franchise improvement. If the FCNR(B) deposits translate into stickier balances and broader customer relationships, the margin pressure could prove temporary. If not, the bank may need to balance growth ambitions with pricing discipline.
Deposit Mix Takes Centre Stage
The latest update also places the spotlight on the composition of deposits, not just the headline growth rate. For banks, the quality and stability of deposits matter as much as the absolute number, particularly in an environment where competition for retail and institutional funds remains intense. FCNR(B) deposits can be a useful source of funding, but they are sensitive to interest-rate differentials and external market conditions.
RBL Bank's ability to post strong growth in both advances and deposits suggests it is executing on both sides of the balance sheet. The immediate question is whether that growth can be sustained without a sharper decline in margins. Subramaniakumar's remarks indicate the bank is preparing the market for a more normalised profitability profile in the next quarter, even as the underlying franchise appears to be strengthening.
For now, the September quarter stands out as a period of robust expansion. The challenge ahead will be converting that scale into durable earnings quality as the funding mix settles and the full cost of recent deposit inflows becomes visible in the numbers.