S&P Global Forecasts Ongoing Resilience in India's Banking Sector
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New Delhi, Dec 16 (NationPress) The financial sector in India is set to demonstrate ongoing resilience, backed by structural enhancements and promising economic growth forecasts, as highlighted in the S&P Global Ratings 2025 banking outlook.
“We project that asset quality will stabilize, with non-performing loans in the banking sector expected to decrease to around 3.0 percent of gross loans by March 31, 2025. This encouraging trend is underpinned by robust corporate balance sheets and improved risk management practices,” stated Deepali Seth-Chhabria, Analyst at S&P Global Ratings.
Although underwriting standards for retail loans remain stringent and delinquencies are manageable, the swift expansion of unsecured personal loans could pose some risks.
S&P Global anticipates that loan growth will slightly surpass nominal GDP, especially in the retail sector. However, deposit growth may lag behind, which could influence credit-to-deposit ratios.
As per the rating agency, credit costs are expected to return to normal levels from a decade-low of 0.8 percent in fiscal 2024, reaching a range of 0.8 percent - 0.9 percent. Nevertheless, profitability is projected to stay robust, with returns on average assets anticipated to be around 1.2 percent in fiscal 2025, she added.
The Reserve Bank of India’s heightened regulatory scrutiny, centered on compliance and governance, may elevate compliance costs but is likely to strengthen financial stability in the long run. Overall, the outlook for India’s financial sector remains stable as it adapts to these changing dynamics, the report noted.
A recent report from the RBI also indicated that the Indian financial system remains sturdy and is benefitting from broader macroeconomic stability.
The banking sector is well-capitalized, and its unclogged balance sheet reflects a greater capacity for risk absorption, while both the NBFC sector and Urban Cooperative Banks continue to show signs of improvement, the report mentioned.
RBI Deputy Governor M. Rajeshwar Rao stated earlier this month that the Insolvency and Bankruptcy Code (IBC) has been instrumental in enhancing bank asset quality and facilitating significant pre-admission settlements of underlying debts exceeding Rs 10 lakh crore since its inception in 2016, thereby strengthening banks.
