Indian Banks' Margins Set to Narrow in FY26 as Credit Growth Slows

Indian banks are expected to face margin pressures in FY2026 as credit growth slows amid high interest rates. ICRA has revised its credit growth estimate downwards to 9.7-10.3% for FY2026, citing persisting high credit-to-deposit ratios and proposed changes in liquidity coverage ratio frameworks. While profitability may trend downwards, return indicators are projected to remain stable at 1.1-1.2% ROA for FY2026. The RBI's Financial Stability Report suggests gross bad loan ratios could rise to 3% by March 2026 from 2.6% in September 2024, highlighting potential asset quality risks.

Sources: ICRA, Reserve Bank of India, S&P Global Market Intelligence