New Delhi, May 5 -- Interest rate margins may remain under pressure in the first half of the current financial year, as lenders continue raising funds at high costs to match soaring loan growth. In the March quarter, margins for most banks, especially the mid-sized lenders, were flat to slightly lower.

Margins compress when banks cut loan rates in line with benchmarks, but continue paying deposit interest at assured rates until they mature. Raising rates as deposits mature could help ease some of the margin pressure, but the banks are also constrained by their need to raise deposits to support loan growth.

According to Fitch Ratings, an increased share of loans to retail, agriculture and MSME customers may help margins, as these loans a...