Indian Banks' RoA to slip 10-15 basis points to 1.15-1.2 per cent in FY26 on lower treasury income, expected credit loss provisioning: Report
New Delhi, May 30
The Indian banking industry's return on assets is expected to slip 10-15 basis points to 1.1-1.2% this fiscal from around 1.3% last fiscal, Crisil Ratings said in a report, citing reduced treasury income and pre-emptive provisioning ahead of the expected credit loss framework. Despite the moderation, RoA will remain well above the 20-year average of 0.8% and 10-year average of 0.6%, the ratings agency noted.
"The banking sector's net interest margin (NIM) is expected to hold steady at 2.9% this fiscal, after declining 20 basis points (bps) last fiscal," said Subha Sri Narayanan, Director, Crisil Ratings. "Outstanding deposit rates fell ~50 bps against a decrease of ~80 bps in lending rates last fiscal, following a cumulative repo rate cut of 125 bps. However, the cost of liabilities has likely bottomed out. As credit growth continues to outpace deposit growth, competition for deposits remains intense. This, coupled with increasing reliance on pricier funding sources such as bulk deposits, would likely push deposit costs up," she added.
Crisil Ratings expects NIM on a full-year basis to remain stable, though higher deposit costs may lead to a correction from last fiscal's exit NIM of above 3% in the fourth quarter. The agency's base-case assumes a stable policy rate this fiscal. Apart from NIM, fee and other income will also impact earnings. Total other income is likely to soften by 5-10 bps to 1.2% last year, primarily due to normalization in treasury income after sharp bond yield gains in H1 last year. Fee and commission income should grow steadily, underpinned by healthy bank credit growth of around 13% this fiscal.
Credit cost remained at a decade-low of ~0.4% last fiscal, supporting profitability and helping keep RoA range-bound despite NIM moderation. However, provisioning expenses could see an uptick this fiscal. "Banking sector provisions could rise 5-10 bps this fiscal--though remaining benign at sub-0.5%--due to proactive provisioning ahead of the new ECL framework," said Vani Ojasvi, Associate Director, Crisil Ratings. Although the new norms take effect on April 1, 2027, and allow a glide path, some banks have advanced part of the provisions, a trend that may continue.
The ECL framework shift is one of two key reasons for RoA pressure. The other is reduced treasury income due to rising bond yields. Operating expenditure is likely to remain largely stable, with a potential nominal increase from implementation of the new labour codes notified on November 21, 2025, for which detailed guidelines are awaited. Crisil Ratings said that even in a scenario of a protracted West Asia conflict and inflation surge forcing RBI repo rate hikes, banks' NIM may inch up as most loans are floating rate and reprice faster than fixed deposits, limiting downside risk to profitability.
— ANI
Reader Comments
The ECL provisioning is a smart move. Indian banks have learned from past mistakes. But I wish they'd also focus on improving customer service—most PSU banks still feel like they're stuck in the 90s. Digital adoption is helping, but branches need an upgrade too.
All these reports say RoA is stable, but as a depositor, I'm feeling the pinch. Fixed deposit rates have fallen so much that elderly parents are struggling. Banks are cutting rates but won't reduce loan EMIs proportionately! Hope RBI keeps an eye on this.
Good to see Indian banks maintaining profitability despite global headwinds. The NIM stability at 2.9% is impressive given the intense competition for deposits. Credit growth of 13% while keeping NPAs low shows real improvement in underwriting standards.
Yaar, these ratings agencies always talk about profitability ratios, but what about the common man? My home loan interest is still high despite repo rate cuts. Banks are making record profits but we're struggling with inflation. Something doesn't add up.
Interesting read. As someone who works in fintech, I think Indian banks are doing well to digitize while maintaining profitability. The ECL framework will force better risk management. That said, competition from NBFCs and digital lenders will keep margins tight.
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