Fitch Predicts Dramatic Drop: India’s Bank NPAs Set to Plummet 0.4% by March – A Turning Point for Financial Stability!
New Delhi, Jan 24: Indian banks are anticipated to witness a dip in their gross non-performing assets (NPAs) ratio, dropping by 0.4% to reach 2.4% by March 2025, with an additional 0.2% decline expected in the following fiscal year, as projected by Fitch Ratings. Despite a rise in stress within retail lending, particularly affecting unsecured credit, factors such as robust growth, recoveries, and write-offs are likely to counterbalance the surge in non-performing loans, according to the report.
Currently, the lending stress primarily affects smaller, unsecured personal loans under $600 (Rs 51,000), although major Indian banks’ exposure to such high-risk loans is comparatively lower. In contrast, Non-Banking Financial Companies (NBFCs) and fintech firms predominantly extend these loans to low-income borrowers.
The Reserve Bank of India (RBI) expects the impaired-loan ratio to bottom out in the financial year 2024-25 (FY25), increasing to around 3% in FY26 from 2.6% recorded in the first half of FY25. This variation in projections highlights differing perspectives on risk crystallization, exposure, loan growth, and economic performance, the Fitch report explains.
Unsecured personal loans and credit card borrowing have surged significantly, with a compound annual growth rate of 22% and 25%, respectively, over the three years leading to FY24. However, the growth decelerated to 11% and 18% year-on-year in the first half of FY25 due to heightened risk weights for unsecured lending.
India’s household debt, at 42.9% of GDP as of June 2024, remains lower than many Asian emerging markets. Nonetheless, stress in unsecured retail loans is climbing, accounting for about 52% of new bad retail loans in the first half of FY25. The report also notes potential indirect exposure for banks through funding extended to non-banks and fintechs exposed to low-income borrowers, who constitute over one-third of the consumer credit market.
Original Source: https://assamtribune.com/national/npas-of-indian-banks-likely-to-decline-by-another-04-per-cent-by-march-fitch-1565745
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Publish Date: 2025-01-24 12:00:00
