There could be pressure on yields on the back of emergent pressures on the inflation front and the large fiscal borrowing programme of the government, the Reserve Bank said today.
"Given the emergent pressures on the inflation front and the large fiscal borrowing programme (of the government), there are likely to be pressures on yields, which may have some impact on the cost of funds of banks," RBI said in its Fiscal Stability Report released today.
Banks' net interest margins and profitability could also take a hit, the report said, as banks may also need to make provisions towards depreciation in value of investments depending on the duration of their portfolio.
"Margins may also face pressure from the regulatory requirement for increased provisions and calculation of interest on savings bank deposits on a daily basis from April 1," the RBI said.
An over-reliance on bulk deposits in certain banks, now at elevated levels, could pose an issue, the apex bank said.
"This could impact the cost and stability of the deposit base," it said.
While the resilience of the commercial banks to credit and interest rate shocks has improved over time, the liquidity scenario analysis shows some potential risk, it said.