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Banks Get an A for Assets, a C for Cash Flow—Fitch Sounds Alarm on Deposits


Updated: July 15, 2025 12:15

Image Source: Times of India
On July 15, 2025, Fitch Ratings released a detailed commentary highlighting deposit pressure across Indian banks, even as core financial metrics remain robust. The analysis follows the Reserve Bank of India’s (RBI) tighter scrutiny of unsecured retail lending and liquidity management, which has led to slower loan growth and a renewed focus on deposit mobilization.
 
Key Findings from Fitch’s Review
  • Loan Growth Slows: Sector loan growth in FY25 was 10.6%, the slowest in four years, due to reduced lending to NBFCs and unsecured retail borrowers.
  • Deposit Mobilization Crucial: Fitch warns that deposit growth must accelerate to sustain improved loan-to-deposit ratios (LDRs) and credit expansion.
  • Asset Quality Improves: The impaired-loan ratio fell to 2.2%, with bad loans down by 12% and strong coverage ratios maintained.
  • Capital Buffers Rise: Average CET1 ratio increased by 40 basis points to 14.2%, driven by internal capital generation and lower risk density.
  • Profitability Stable: Despite margin compression, banks preserved earnings through low credit costs, recoveries, and treasury gains.
Deposit Pressure & Regulatory Oversight
  • Fitch notes that deposit growth lagged behind lending, creating pressure on liquidity and funding costs.
  • The RBI’s macroprudential measures have curbed aggressive retail lending, prompting banks to rebalance portfolios toward secured assets.
  • Fitch expects credit costs to rise modestly in FY26, but believes banks can absorb shocks due to stronger buffers.
Analyst Commentary
“Improved deposit mobilization will be key to preserving the gains in LDRs and supporting future loan growth,” said Saswata Guha, Senior Director at Fitch Ratings. “The sector’s resilience is evident, but funding dynamics remain a watchpoint,” added Prakash Pandey, Associate Director.
 
Sources: Fitch Ratings, Times of India, Fitch Ratings, Economic Times BFSI

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