Despite sharp interest rate cuts expected in this financial year amid easy liquidity conditions, state-run banks are treading cautiously on their loan growth projections for FY26.
Most large banks are projecting loan growth at 11-13 per cent, almost similar to the previous financial year.
Similarly, banks’ deposit growth is expected to be in the range of 9-11 per cent as mobilisation of retail deposits continues to be a challenge.
Bankers said credit growth is likely to be sluggish in FY26 due to weaker demand across unsecured loans, mortgages.
They are also cautious on lending to non-banking financial companies (NBFCs).
Some said tariff-related uncertainty may impact investment activity, thereby impacting credit growth.
State Bank of India (SBI) chairman C S Setty said the lender has revised credit growth projection downward to 12-13 per cent from 14-16 per cent predicted earlier.
“The only upside that could be possible is if the tariff-related clarification comes.
"Though the Indian economy is less impacted by the tariff, the uncertainty may impact the overall economy and investment scenario.
"On that background, we believe credit growth would see some moderation.”
Similarly, Canara Bank Managing Director (MD) and Chief Executive Officer (CEO) K Satyanarayana Raju said the bank remains conservative in its guidance.
“Therefore, we are giving a lower figure against market expectation of 12 per cent for FY26.”
Another state-run lender — Bank of Baroda — projected deposit and advances growth at 9-11 per cent and 11-13 per cent, respectively.
“Cautiously maintaining our guidance as we need to see how liquidity conditions pan out.
"If the environment is conducive, we may beat the guidance by 1-2 per cent.
"On the corporate side, price competitiveness is still high but we are eyeing 10 per cent growth in corporate loans,” said Debadatta Chand, MD and CEO, Bank of Baroda.
Union Bank of India refrained from giving any guidance on deposit, credit growth, net interest margins (NIMs) and net interest income (NII) for FY26.
“We are assessing the ongoing macro situation, and we will be able to give guidance once we get clarity,” said A Manimekhalai, MD and CEO, Union Bank of India.
According to RBI data, commercial banks’ loan growth was 11 per cent in FY25 while deposit growth was 10.3 per cent.
Credit and deposit growth were 20.2 per cent and 13.5 per cent in FY24.
The RBI has started reducing interest rates since February and kept banking system liquidity in surplus to ensure transmission of monetary policy rates.
The RBI has cut the policy repo rate by 50 basis points (bps) cumulatively and is expected to cut more to lift economic growth.
The interest rate cut, however, exerted downward pressure on banks’ margins.
Loans linked to the external benchmark, which was 30-40 per cent of the public sector bank (PSB) loan book, fell due to policy rate cuts while deposit rate re-pricing happens with a lag.
Canara Bank’s CEO said the bank had passed the benefit of rate cut to the entire 44 per cent availing loan linked to the repo rate.
Meanwhile, owing to a tough competition to raise retail deposits, the bank could not cut rates on deposits, leading to muted growth in NII.
During the January-March quarter, state-owned lenders recorded a substantial jump in net profits, primarily boosted by robust growth in other income, which comprises fee-based income, treasury income and recoveries.
PSBs’ net profit rose to Rs 48,370 crore in Q4FY25 compared to Rs 42,847 crore in Q4FY24, according to Capitaline data.
State-owned lenders recorded a 2.7 per cent year-on-year (Y-o-Y) growth in NII, while other income rose 27.1 per cent to Rs 58,661 crore.
Industry experts and bankers anticipate an improvement in interest margins from the third quarter onwards as deposit rate re-pricing gathers pace.
"As bond yields fell, banks booked profits.
"Secondly, banks were allowed to sell bonds in the held-to-maturity (HTM) category during open market operations (OMOs).
"This helped them make profits,” said Anil Gupta, senior vice-president and group head, financial, at ICRA.
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