New Delhi, Jan 14 (IANS): The growth of small finance banks (SFBs) in the country is set to reach 20-23 per cent in FY26 from 18-20 per cent in FY25, a report showed on Tuesday.

From a funding perspective, the SFBs have been gradually increasing the share of current account and savings accounts (CASA) deposits over the years and the same stood at around 28 per cent as of the end of September 2024, according to credit rating agency ICRA.

The credit-deposit (CD) ratio stood at 89 per cent as of September 2024, which at present is comparable to the private sector bank average.

In line with the trend seen in universal banks, there has been a move towards term deposits offering higher interests and the trend is likely to continue over the near term, said the report.

Given the industry-wide headwinds, specifically in the microfinance segment, ICRA expects the SFB growth to moderate in FY25 to 18-20 per cent from 24 per cent in FY24, and subsequently pick up in FY26 to 20-23 per cent.

“The SFBs have been diversifying their product offerings over the years to include other retail asset classes such as vehicle loans, business loans, LAP, gold loans and housing finance, which has led to reduction in the share of unsecured loans in their overall pie,” said Manushree Saggar, SVP and Sector Head-Financial Sector Ratings, ICRA.

Considering the stress seen in the microfinance sector, a larger share of incremental business will come from secured asset classes, which would be the likely growth drivers in FY26, Saggar added.

“With a more calibrated expansion in the current fiscal, the operating ratios shall benefit from higher efficiency. Higher credit costs, however, shall lead to a moderation in the overall profitability in FY25,” said the report.