“ROAs have peaked at 1.4 per cent, and further upside may be limited as NIMs decline,” it said.
Margins fell to 3.1 per cent in FY25 from 3.3 per cent a year earlier, as yields flattened, funding costs rose, and loan books tilted towards lower-yield secured credit.
Interest expenses rose to 4.6 per cent of average assets from 4.4 per cent, as weak deposit growth pushed banks towards costlier wholesale funding.
A decade-high credit-deposit ratio of 80 per cent has also driven a shift to higher-cost term deposits, now 61 per cent of deposits, weighing on margins.
Non-interest income slipped to 1.3 per cent in FY25 from about 1.4 per cent in 2020, as fee income remained flat with payment value pools shifting to fintechs and payment banks.
Cost pressures persist despite some moderation. The cost-to-income ratio eased to 48.6 per cent from 50.1 per cent, but cost-to-assets ratios remain elevated. Higher staff costs and increased spending on technology and compliance continue to drive costs, particularly for private banks.
Asset quality has improved, with gross NPAs falling to a 13-year low of 2.2 per cent. However, the report flagged rising risks, noting that higher write-offs and slippages — especially in unsecured retail loans — signal emerging stress. The slippage ratio rose to 0.70 per cent in FY25.
Capital adequacy remains above regulatory norms, though buffers are declining in midsize and small banks. Public sector banks have improved capital ratios but remain relatively less capitalised, while private, foreign, and small finance banks are seeing moderation.
 "bank, banks")