Key insights
- Macquarie reports rising funding costs are a key challenge for Asian financials, particularly in India. Investors favor private banks due to lower liquidity coverage ratios in public banks. Rising oil prices and potential rate hikes by the RBI pose near-term risks to non-banking financial companies. Foreign investors are cautious on India due to rupee depreciation, but the impact on US equities is limited.
Investing.com - Macquarie stated that raising resources at lower costs has become the primary constraint for banks and non-banking financial companies in Asia, according to a Friday report.
The investment bank noted that liquidity coverage ratios have declined while loan to deposit ratios have risen, requiring deposit growth to support both loan expansion and margins. Macquarie said the fund-raising environment remains difficult and cost of funds is expected to stay elevated, keeping margins flat at best from fourth quarter fiscal year 2026 levels.
Investors showed preference for private sector banks over public sector banks and non-banking financial companies amid elevated bond yields and potential interest rate increases by the Reserve Bank of India, Macquarie reported. The firm said investors believe the trade favoring public sector banks over private sector banks has ended, given already low liquidity coverage ratios for public sector banks.
Macquarie said investors agreed that rising oil prices, fuel costs, and 10-year bond yields, combined with a possible repo rate hike by the Reserve Bank of India, could negatively impact non-banking financial companies in the near term.
The investment bank reported that investors remained cautious on insurance companies due to potential disruption from upcoming commission regulations by the Insurance Regulatory and Development Authority of India. While investors viewed PB Fintech's growth and market position favorably, Macquarie noted concerns that a possible cap on distributor commissions could hurt their take rates.
Macquarie said foreign institutional investors expressed caution on India, with rupee depreciation cited as the most pressing near-term concern. The firm reported that foreign institutional investors were surprised by limited government and regulatory action to stabilize the currency.