India’s banking sector is entering a more challenging phase as tighter liquidity, rising deposit costs and expectations of higher interest rates put pressure on lenders, Axis Bank MD and CEO Amitabh Chaudhry said at the Business Standard BFSI Insight Summit 2026.
Chaudhry said banks had initially expected liquidity to remain comfortable for a few quarters following around $14.3 billion of inflows through the FCNR(B) deposit scheme. However, subsequent RBI liquidity absorption has pushed up incremental deposit rates, increasing banks’ funding costs. Rising inflation and geopolitical uncertainty linked to the West Asia conflict could add further pressure.
He expects credit growth to moderate in the second half as the favourable base effect fades. Nevertheless, longer working-capital cycles, higher inventory requirements, infrastructure investment and project financing are expected to support demand. NBFCs and improved borrower data could also contribute to credit expansion.
Despite these pressures, Chaudhry said banks are better positioned to withstand asset-quality stress than during the previous high-growth lending cycle. Capital levels are around 500 basis points higher, while provision coverage ratios at most banks have increased from 40–45% to 70–75%. Improved underwriting and monitoring have also strengthened resilience.
Chaudhry expects retail lending to grow faster than wholesale lending over the next 18–24 months, provided risks remain manageable. However, he stressed that deposit mobilisation will be critical to support further credit expansion.
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