Forecast for Small Finance Banks in India: Growth to Hit 20-23% by FY26
Click to start listening
Synopsis
The growth of small finance banks (SFBs) in India is projected to reach 20-23% in FY26, reflecting a rise from 18-20% in FY25. This trend indicates a shift towards secured asset classes amid industry challenges, particularly in microfinance.
Key Takeaways
- Growth of SFBs to reach 20-23% in FY26.
- CASA deposits rose to 28% as of September 2024.
- CD ratio stands at 89%, comparable to private banks.
- Focus shifting to secured loans amid microfinance challenges.
- Operational efficiency expected to improve despite credit cost pressures.
New Delhi, Jan 14 (NationPress) The anticipated expansion of small finance banks (SFBs) in India is expected to reach 20-23 percent in FY26, up from 18-20 percent in FY25, as per a report released on Tuesday.
From a funding standpoint, these banks have progressively increased their proportion of current account and savings account (CASA) deposits, which stood at approximately 28 percent by the end of September 2024, according to the credit rating agency ICRA.
The credit-deposit (CD) ratio was noted at 89 percent as of September 2024, aligning closely with the average of private sector banks.
Reflecting the trends observed in universal banks, there is a growing shift towards term deposits that offer enhanced interest rates, a trend expected to persist in the near future, the report indicated.
Due to industry-wide challenges, particularly within the microfinance sector, ICRA forecasts a moderation in SFB growth to 18-20 percent in FY25, down from 24 percent in FY24, with a rebound projected in FY26 to 20-23 percent.
“Over the years, SFBs have broadened their product range to include various retail asset classes such as vehicle loans, business loans, loan against property, gold loans, and housing finance, which has contributed to a decrease in the share of unsecured loans,” stated Manushree Saggar, SVP and Sector Head of Financial Sector Ratings at ICRA.
In light of the challenges faced in the microfinance sector, a significant portion of new business is anticipated to arise from secured asset classes, expected to be the primary growth catalysts in FY26, Saggar added.
“With a more measured expansion during the current fiscal period, operational ratios are expected to improve due to increased efficiency. However, rising credit costs may result in a dip in overall profitability in FY25,” concluded the report.
