Indian banking returns hit decade-high as global margins shrink

CareEdge report confirms banking metrics are the strongest in years with multi-year low debt ratios.

India’s banking sector has significant headroom for credit growth, making it attractive for foreign banks to expand operations in, according to CareEdge Ratings.

Banking margins remain relatively high despite a low bank credit-to-GDP ratio, according to a report published on 22 January 2026. Credit penetration in India also remains low.

This positioning suggests significant headroom for growth in India without the "leverage-driven" risks evident in more mature banking systems, it added.

“This structural advantage strengthens India’s attractiveness as a growth market. It supports the case for foreign banks to expand operations and establish regional centres to capture long-term credit growth opportunities,” CareEdge Ratings wrote.

Several foreign banks have announced expansions in India. Japan's Sumitomo Mitsui Banking Corporation (SMBC) received in-principle approval from the Reserve Bank of India (RBI) to set up a wholly owned subsidiary in the country. SMBC Group earlier established an offshoring hub in Chennai.

Other Japanese megabanks, Mizuho Bank and MUFG, also recently announced acquisitions and investments in India. MUFG is investing a total of $4.3b in Shriram Finance, a non-bank financial company with over 3,200 branches. 

Mizuho Bank, meanwhile, is acquiring over 60% of shares of Avendus Capital. Avendus Capital offers asset management, credit solutions, investment banking and wealth management solutions.

India's banking sector is set to benefit from tighter regulatory oversight in 2026, according to an earlier report by Fitch Ratings. 

The RBI has announced multiple reforms in 2025, including plans to align more closely with IFRS 9 by adopting a new expected credit loss framework. These should allow banks to provision more effectively, Fitch said in a report published earlier in January 2026.

In contrast with India, developed economies exhibit significantly higher credit penetration but operate with compressed margins due to their mature and competitive banking systems, CareEdge Ratings said.

“Advanced economies such as the UK, China, and France exhibit elevated credit-to-GDP ratios but operate with compressed net interest margins (NIMs), reflecting intense competition,” it wrote.

India hit decade-high returns in the FY2025 period, according to a separate report by Fitch Ratings. “Banking system metrics are the strongest in years, though some more recent reforms are untested through a down-cycle,” according to a report on 6 January.

Indian banks also operate with gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios at multi-year lows, CareEdge Ratings said.

“This improvement, combined with adequate capital buffers, positions the banking system favourably to absorb incremental credit risk while continuing to support sustained loan growth,” CareEdge said.