Sachin Sachdeva, a vice-president & sector head at the agency said, the pro-growth regulatory stance has revived the lenders’ appetite for credit growth in Q4 after a brief period of slow incremental credit growth in the initial period of FY25. Accordingly, we estimate the incremental credit expansion to be around Rs 19-20.5 trillion, clocking a growth rate of 10.8% in FY26 compared to credit expansion of Rs 18 trillion or 10.9% growth rate in FY25.
He also said the recent liquidity injections are likely intended to nudge a faster transmission of rate cuts. But one of the key challenges, which the banking sector has been facing in the last few years is raising deposits at competitive pricing, especially the retail deposits, given the pressure on the LCR. The increasing competition from other investment avenues and the investors’ preference for term deposits have led to a reduction in the share of low-cost Csas balances, impacting their fund cost. The challenges are likely to persist in the near term, which is likely to delay the transmission of rate cuts by the RBI to banks’ cost of funds, in spite of the recent liquidity measures, thereby impacting the banks’ margins.
With an elevated CD ratio, the competition for deposit mobilisation is likely to remain high even during FY26 too, which will limit the banks’ ability to cut their deposit rates. The lending rates may, however, remain under pressure because of the decline in the external benchmark-linked loans and competition from debt capital markets, he said.
