Regulatory Reforms To Fuel 10.8% Credit Growth In FY26: Report
The incremental credit is likely to rise 10.8 per cent to Rs 19-20.5 lakh crore in the current fiscal compared to Rs 18 lakh crore or a 10.9 per cent growth in 2024-25, according to rating agency Icra. In a release on the Indian banking sector outlook, the agency said it expects the regulatory easing seen in recent months to support a credit expansion of about 10.8 per cent in FY2026.
Such measures include the repo rate cut, deferment of proposed changes in the liquidity coverage ratio (LCR) framework and additional provisions on infra projects, along with the roll-back of increased risk weights on lending to unsecured consumer credit and non-banking financial companies (NBFCs).
"Besides this, the durable liquidity infusion by the Reserve Bank of India through open market operations (OMO) by way of purchases of Government bonds and forex swaps with banks, would aid the liquidity and faster transmission of the ongoing cut in policy rates," it said.
The persisting challenges in deposit mobilisation, high credit-deposit (CD) ratio and rising stress in the unsecured retail and small business loans would remain a drag on credit growth and accordingly, the pace of credit expansion is expected to trail the recent highs seen in FY2024, it added.
Sachin Sachdeva, vice president and sector head, Icra, said the pro-growth regulatory stance has revived the lenders’ appetite for credit growth in Q4 FY2025 after a brief period of slow incremental credit growth in the initial period of FY2025.
"Accordingly, Icra estimates the incremental credit expansion to be around Rs 19-20.5 lakh crore, clocking a growth rate of about 10.8 per cent in FY2026 compared to credit expansion of Rs 18 lakh crore or a 10.9 per cent growth rate in FY2025," Sachdeva said.
The recent announcements of liquidity injections by the RBI are likely intended to nudge a faster transmission of rate cuts, the rating agency said.
One of the key challenges, which the banking sector has been facing in the last few years, is raising deposits at competitive pricing, especially retail deposits, given the pressure on the liquidity coverage ratio (LCR), it added.
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 current and savings account (CASA) balances, impacting the banks’ cost of funds, the release said.
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, it added.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
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