Context:
Fitch Ratings has projected that the Reserve Bank of India’s recent 50 basis point rate cut could help revive loan growth to 12–13% in FY26. However, this growth is contingent on stronger deposit mobilisation by the banking sector.
Key Banking Sector Metrics and Trends
- Loan-to-Deposit Ratio (LDR):
- Rose 120 basis points in FY25.
- Sustaining loan growth momentum will require banks to match or exceed lending with deposit growth.
- Sectoral Loan Growth:
- Dropped to a 4-year low of 10% in FY25.
- Decline driven by slower lending to Non-Banking Financial Companies (NBFCs).
- Public Sector Banks (PSBs) outperformed private banks, growing at 12.4%.
- Earnings Resilience:
- Net Interest Margin (NIM) fell by 20 basis points.
- Despite this, earnings were supported by:
- Lower credit costs
- Recoveries from non-performing assets
- Treasury gains
