The profitability of Indian banks is expected to moderate in FY26 after reaching an inflection point in FY25, due to rising delinquencies from over-leveraging of unsecured assets and an increase in unsecured credit costs, analysts at India Ratings said on Tuesday.
Since FY22, deposits in the banking system have continued to lag behind the system's credit growth, with an average gap of 416 basis points (bps). This has led to the loan-to-deposit ratio (LDR) rising to 80.4% in the first half of the current financial year, from 70.1% in FY21.
Ind-Ra believes that the elevated LDR may constrain loan growth for banks in the medium term.
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