Banking credit growth to remain subdued around 10% for FY26: ICRA

Credit growth may ease to 9.7-10.3 per cent in FY26, weighed down by the persisting high CD ratio and implementation of the proposed changes in the liquidity coverage ratio (LCR) framework, ICRA said in a report.

ICRA has revised its credit growth estimate downwards to 10.5-11 per cent for FY25 from its earlier estimate of 11.6-12.5 per cent.

In its recent report, ICRA highlighted that with the banks focusing on reducing their credit-to-deposit (CD) ratio and reducing their exposures to unsecured retail and non-banking financial companies (NBFCs), the overall credit growth has moderated in the past few months, it said.

Consequently, credit and deposit growth has almost aligned with each other and ICRA expects the trend to continue, the rating agency said in the report.

The persisting high interest rates and the slowdown in credit growth, especially towards high-yielding advances will impact the margins of the banking sector, it said.

The capital ratios of several banks remain comfortable, and no major growth-related capital requirement is expected for FY26, it said.

Nevertheless, the implementation of the expected credit loss (ECL) framework and increased provisioning for project finance in the medium term is likely to be monitorable, it added.

On the asset quality front, it said, fresh NPA generation rate is expected to see a relative increase in FY25 and FY26 but the credit costs would see only a mild rise because of lower legacy net NPAs.