Key Points
Easing liquidity and risk weights support growth
Banking loans predicted to grow at 12-14% in FY26
Rising deposit challenges amid diverse financial landscapes
Fixed-rate loan banks better positioned for margin pressures
The report expressed confidence on the easing liquidity situation as well as the easing risk weights on the unsecured retail.
"With easing liquidity and probable easing of risk weights on unsecured retail, we expect sector loan growth to stay at 12-14 per cent in FY26E," the report added.
By definition, the change in the total amount of outstanding bank loans given to both consumers and companies is measured by bank loan growth.
The loan growth in the month of february moderated for an eighth straight month, at 12 per cent, slower than 16.6 per cent a year earlier, as per the RBI data.
As highlighted by the report, the high deposit pricing and softening yields will keep margins under pressure (5- 20bps) for most lenders in FY26.
As per the report, banks with a decent share of fixed-rate loans are better placed on margins than those with a high share of variable-rate portfolios.
After witnessing a pristine trend in asset quality after Covid, there was a spike in retail NPAs caused by a surge in unsecured retail loans (personal loans/credit cards) in recent years.
"The recent consolidation in retail lending will allow banks to recognise/identify balance sheet stress by 1HFY26. Credit costs could increase YoY in FY26, but improved PCR (70 per cent) and well-built buffer provisions (0.7-1.7 per cent of loans) may provide some comfort," the report added.
The report further added that the deposit augmentation has become challenging for all lenders irrespective of balance sheet size, geographical presence or technological advancement.
The option value for deposits has been costlier; however, bankers have been deploying money into better-yield retail assets to compensate for the same, the report added.
In recent years, Indian households witnessed multiple options to save, which resulted in a gradual decline in the share of fixed deposits. The preference of urban savers has shifted towards better-yielding investment options.
In contrast, the rise of technology has paved the way for several capital market players in rural and semi-urban geographies.
Considering the improvement in penetration and the increasing diversity of various financial players, keeping momentum in deposit augmentation will remain challenging for most lenders, as per the report.
