New Delhi [India], March 30 (ANI): India’s banking sector is expected to witness loan growth between 12-14% in Fiscal Year 2026 (FY26), according to a report by Ambit Capital.
The report cites easing liquidity and a probable reduction in risk weights on unsecured retail loans as key factors supporting loan growth.
Banking Sector Loan Growth Trends
- February 2025: Loan growth slowed for the eighth straight month, standing at 12%, down from 16.6% in February 2024, as per RBI data.
- Despite moderation, the report remains optimistic about stable growth in FY26.
Challenges for Banks in FY26
1️⃣ Margin Pressure Due to Deposit Costs
- High deposit pricing and softening yields are expected to compress margins by 5-20 basis points (bps).
- Banks with a higher share of fixed-rate loans will have better margins than those with variable-rate loan portfolios.
2️⃣ Rising Retail NPAs
- Post-COVID, retail non-performing assets (NPAs) have surged due to an increase in unsecured loans (e.g., personal loans, credit cards).
- Retail lending consolidation in early FY26 will help banks assess stress levels on their balance sheets.
- Credit costs could increase YoY in FY26, but strong Provision Coverage Ratios (PCR) of 70% and buffer provisions (0.7-1.7% of loans) may provide relief.
3️⃣ Challenges in Deposit Growth
- Deposit mobilization remains tough for banks, regardless of size, location, or technology adoption.
- Rising competition from higher-yielding investment options has led to a decline in fixed deposit (FD) share, especially among urban savers.
- Fintech and capital market expansion in rural and semi-urban areas has further diversified saving habits.
Key Takeaways
📌 Loan growth to remain steady at 12-14% in FY26.
📌 Banks with fixed-rate loans will have better margins than those relying on variable-rate portfolios.
📌 Retail NPAs and credit costs may rise, but strong provisions could mitigate risks.
📌 Deposit mobilization remains a major challenge, as households explore alternative investment options.
As the banking sector navigates these challenges, lenders will need to balance loan growth, asset quality, and deposit expansion strategies to sustain profitability. (ANI)
About The Author
