Indian Banks Strong in 9MFY25, Impaired Loans Near Trough: Fitch
The Indian banking sector has shown remarkable resilience and strength in the first nine months of the current financial year (9MFY25). According to a recent report by global rating agency Fitch Ratings, Indian banks have demonstrated robust performance, with the sector’s impaired loan ratio nearing its lowest point. This positive trend is expected to continue, with Fitch forecasting positive prospects for the banking sector in FY26.
Indian banks have been recovering from the pandemic-induced stress in recent years, and the current performance is a testament to their ability to adapt and thrive in a challenging environment. The sector’s improved performance is attributed to various factors, including a decline in non-performing assets (NPAs), a rise in credit growth, and a significant increase in provisioning buffers.
One of the key highlights of the report is the impaired loan ratio, which has been declining steadily over the past few years. As of 9MFY25, the impaired loan ratio stood at around 6.3%, which is close to its trough level. This ratio measures the percentage of a bank’s total loans that are classified as non-performing, and a lower ratio indicates a healthier loan book. The decline in the impaired loan ratio is a significant positive development, as it suggests that Indian banks are successfully managing their risk profiles and reducing their exposure to troubled loans.
Another key metric that has shown improvement is credit growth. Indian banks have been focusing on increasing their lending activities, particularly to the corporate sector, which has been driving growth in the economy. As a result, credit growth has accelerated, with the total credit outstanding increasing by around 10% year-on-year (YoY) in 9MFY25. This growth is expected to continue, driven by the government’s initiatives to boost economic activity and the Reserve Bank of India’s (RBI) accommodative monetary policy stance.
Provisioning buffers have also seen a significant increase, which is a positive sign for the banking sector. Indian banks have been building up their provisioning buffers to account for potential loan losses, and this has helped to reduce their risk profiles. As of 9MFY25, the provisioning coverage ratio stood at around 75%, which is higher than the regulatory requirement of 50%. This indicates that Indian banks have sufficient buffers to absorb potential losses and maintain their solvency.
Fitch Ratings has also highlighted the positive impact of the government’s initiatives on the banking sector. The government’s efforts to boost economic activity, such as the production-linked incentive (PLI) scheme and the National Infrastructure Pipeline (NIP), have created new opportunities for banks to lend and drive growth. Additionally, the RBI’s accommodative monetary policy stance has helped to reduce borrowing costs, making it easier for banks to access funds and increase their lending activities.
However, Fitch Ratings also noted some challenges that Indian banks may face in the future. The report highlighted the need for banks to continue to focus on improving their asset quality, as well as the need to address the issue of high provisioning costs. Additionally, the report noted that the banking sector may face some challenges in terms of talent management, as many experienced bankers are nearing retirement.
In conclusion, the Indian banking sector has shown remarkable strength and resilience in the first nine months of the current financial year. The sector’s impaired loan ratio is nearing its lowest point, credit growth is accelerating, and provisioning buffers are increasing. While there are some challenges that Indian banks may face in the future, Fitch Ratings’ positive outlook for the sector suggests that the banking sector is well-positioned for growth and stability in the coming years.
