New Delhi [India], March 31 (ANI): Indian banks are expected to register loan growth of 12-14 per cent in the financial year 2025-26 (FY26), driven by an increase in deposit inflows, according to a report by Ambit Capital Research.

The report highlighted that the banking sector has started seeing some relief in loan-todeposit ratios (LDRs) after facing challenges related to liquidity and asset quality. This improvement is mainly due to a gradual rise in deposits and a slower pace of loan disbursements. Experts believe that this trend will be reflected in the period-end LDR as well.

Additionally, easing liquidity conditions and a possible reduction in risk weights on unsecured retail loans are expected to support steady loan growth. It said "With easing liquidity and probable easing of risk weights on unsecured retail, we expect sector loan growth to stay at 12-14 per cent in FY26E".

Despite improving liquidity, the report mentioned that the banks are likely to face pressure on their net interest margins (NIMs) in FY26. The reason for this is high deposit costs and falling yields, which could lead to a decline of 5-20 basis points for most lenders.