'Indian banks' profitability to dip in FY26'

MUMBAI: Indian banks are staring at a tougher year as profitability weakens and finance companies step up lending, according to a report by S&P Global Market Intelligence. Aggregate dividends of 12 large banks are projected to fall 4.2% to $5.98 billion in FY26, from $6.24 billion in FY25.

This comes after a strong FY25, when banks posted double-digit credit growth and record profits. Now, compressed net interest margins due to rate cuts, higher deposit costs, and slower loan demand are expected to weigh on earnings.HDFC Bank and Bank of Baroda are forecast to cut dividends for the first time in at least four years, to Rs 8.25 and Rs 7.90 per share respectively. By contrast, State Bank of India is likely to keep payouts flat at about Rs 16 per share, while ICICI Bank may lift dividends to Rs 12.At the same time, finance companies are expected to expand faster than banks. S&P Global Ratings projects loan growth of 21%-22% for rated fincos over the next two years, compared with 11%-12% for banks. Their retail focus, underpenetrated markets and stronger net interest margins are seen as drivers.