New Delhi [India], July 6 (ANI): Indian banks are expected to see an improvement in the credit-to-deposit (CD) ratio in FY27, led by public sector banks (PSBs), while overall credit growth is projected to remain steady at around 14% year over year, according to a report by Motilal Oswal Financial Services (MOSFL).
The report said systemic credit growth rose to 17.7% as of June 15, 2026. The increase was driven by strong demand for working capital loans due to higher input costs, a regulatory shift from the loan-to-deposit ratio (LDR) to the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), and higher corporate borrowings following the rise in bond yields during the first quarter of FY27.
MOSFL also noted that the Reserve Bank of India’s (RBI) decision to exempt FCNR(B) deposits with tenures of three to five years from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements has made the scheme more attractive for banks.
“The measure alone is expected to generate USD 40-50 billion in foreign exchange inflows in FY27 and should support overall business growth,” the report said.
According to the report, yields on fresh loans increased by 6 basis points for public sector banks and declined by 7 basis points for private banks, resulting in a net increase of 1 basis point for the banking sector in May 2026.
The report said the outlook for net interest margins (NIMs) remains mixed, with a negative bias for mid-sized banks. It added that the impact of earlier repo rate cuts on external benchmark-linked loans has largely been absorbed, as the repo rate has remained unchanged over the past six months.
“Going forward, movements in asset yields are expected to be driven primarily by changes in the product mix and residual deposit repricing,” the report said.
The report said asset quality remains healthy across most segments, with no immediate impact from the conflict in West Asia. However, higher input costs and pressure on operating margins could weigh on borrowers’ profitability.
MOSFL expects credit growth to remain supported by a recovery in corporate lending, steady retail loan demand, and continued expansion in MSME and gold loans.
“Accordingly, we expect systemic credit growth at around 14% in FY27,” the report said. (ANI)
About The Author
