The Reserve Bank of India (RBI) has proposed a revised disclosure framework under Basel III norms that would require banks to publish more detailed information on capital adequacy, leverage, liquidity and risk exposure. According to PTI, this move aims to strengthen transparency and market discipline in the banking sector. Under the proposed framework, banks would be required to make quarterly disclosures in a standardised format covering key prudential indicators, including Common Equity Tier 1 (CET1) capital, total capital, risk-weighted assets (RWAs), leverage ratio, liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). The RBI has invited stakeholder comments on the draft circular until June 2 and said the final directions would become effective from the quarter ending September 30, 2026. As per the draft circular, banks would also have to explain major changes in these metrics compared with previous quarters and identify factors driving such movements.
Public sector banks are experiencing significant liquidity pressures as liquidity coverage ratios (LCR) declined 10-12 percentage points in Q4 FY26, falling to 114-118% levels - dangerously close to the regulatory threshold of 100%. According to The Economic Times, this decline is driven by strong loan demand outpacing retail deposit growth, forcing banks to deploy surplus liquidity to fund loans. Union Bank of India's LCR dropped to 114% from 124% year-on-year, while Canara Bank's LCR fell to 118% from 125% despite both banks achieving 12% loan growth. SBI's LCR declined to 124% from 133% even as the bank posted 17% loan growth against 11% deposit growth. As per Macquarie Capital's Suresh Ganapathy, PSU banks are running down LCR to fund credit growth, with current levels offering little room to grow loans without deposits.
Major Indian banks delivered robust financial performance in the March quarter of FY2026, with improved asset quality, healthy credit expansion and higher income supporting their results. According to market reports, HDFC Bank witnessed a 9% increase in Q4 net profits, while the country's largest public sector lender State Bank of India (SBI) posted a 5.5% rise in Q4 net profits and 3.13% rise in net interest income. ICICI Bank showed healthy performance with PAT rising by 8% to ₹13,701 crore, while Axis Bank posted flat growth in net profits to ₹7,071 crore but saw NII rise by 4.7% to ₹14,457 crore. Kotak Mahindra Bank, the fifth largest by market capitalisation, witnessed a 13% rise in net profits to ₹4,027 crore with NII rising 8% to ₹7,875 crore year-on-year. As per Kanal Media, SBI remained the most profitable bank while HDFC Bank narrowed the gap significantly and ICICI Bank continued to deliver stable and high-quality earnings growth.
Data from NSE filings revealed that the top 10 banks (both public and private sector) listed on the Indian stock markets witnessed strengthening asset quality in the March quarter. As reported by market analysts, this improvement comes on the backdrop of stricter norms from the Reserve Bank of India (RBI) and tightening of provision norms. Mumbai-based independent capital market analyst Ambareesh Baliga explained that with tough regulatory oversight and tightening provision norms, banks have sorted out their NPA baggage situation while maintaining provision reserves. The expert noted that in the last three to four years, a lot of NPA clean-up has happened and credit norms have become quite stiff, significantly improving asset quality across the sector. According to the latest Systematix report, most banks reported stable asset quality in the January-March quarter of FY26, with the slippages in the quarter were broadly in control.
Indian banks are beginning to feel the impact of lower lending rates following the Reserve Bank of India's repo rate cut in December 2025, which has reduced the interest income earned by banks on loans. As per the Systematix report, banks earned relatively lower interest income from loans during the quarter after the RBI's rate cut started reflecting fully in lending rates. The Yield on Advances (YoA) as expected was sequentially lower as the quarter had the full impact of the 25bps repo rate reduction. However, the report noted that deposit growth remained healthy, indicating that customers continue to keep money in banks while credit demand also remains strong. Growth in net advances for the coverage universe seen in 3Q has sustained in 4Q, with aggregate loan growth remained strong on both quarterly and annual basis.
Banks are now focusing more on increasing low-cost deposits such as savings and current accounts, commonly referred to as CASA deposits, to protect profitability in a falling interest rate environment. According to the latest market data, banks are aggressively mobilizing retail term deposits and strengthening savings and liability franchises to adapt to changing financial trends. The Systematix report highlighted that deposit growth outpaced loan growth sequentially during the quarter due to year-end seasonal trends, but the current mismatch between loan and deposit growth is creating additional pressure. Despite near-term pressure on margins, Systematix said it remains positive on the banking sector overall, noting that banks are financially stable with bad loans still largely under control. The changing savings behavior, with more money flowing into market-linked investments instead of traditional bank deposits, is fundamentally altering the banking sector's funding landscape. Indian banks are struggling to mobilise retail deposits because household savings are moving away from traditional bank deposits into higher-yielding or market-linked alternatives, even as credit demand in the economy remains strong.
The new regulatory norms effective Q1 FY27 are expected to provide some relief to banks' liquidity challenges, with trusts, partnerships, and LLPs attracting a lower run-off rate of 40% in FY27, compared to 100% in FY26. As per The Economic Times, these changes will impact how certain business accounts are treated for liquidity calculations. However, the Systematix report cautioned that risks from the ongoing West Asia conflict could emerge later in FY27, with banks expecting the true impact of the West Asia war to be visible in Q2FY27 or in H2FY27. The report explained that prolonged geopolitical tensions could impact businesses and borrowers if higher oil prices and global uncertainty persist. Additionally, banks are preparing for the implementation of the new Expected Credit Loss (ECL) framework, under which lenders may have to set aside money in advance for possible future loan defaults. As per the report, though the banks are still assessing the full impact, they sounded confident on managing the transition.
