India’s financial sector is set for continued resilience, driven by structural improvements and strong economic growth, according to S&P Global Ratings’ 2025 banking outlook.
“We expect asset quality to stabilize, with weak loans projected to decline to around 3.0% of gross loans by March 2025. This is supported by healthy corporate balance sheets and improved risk management,” said Deepali Seth-Chhabria, Analyst at S&P Global Ratings.
While underwriting standards for retail loans remain strong and delinquencies manageable, the rapid growth of unsecured personal loans may pose some risks.
S&P Global expects loan growth to slightly exceed nominal GDP, particularly in the retail segment, though deposit growth may lag, potentially affecting credit-to-deposit ratios.
Credit costs are expected to normalize from a decade-low of 0.8% in fiscal 2024 to a range of 0.8%-0.9%. Despite this, profitability should remain strong, with returns on average assets projected around 1.2% in fiscal 2025, she added.
The Reserve Bank of India’s increased regulatory oversight on compliance and governance may raise compliance costs but will ultimately enhance financial stability. Overall, the outlook for India’s financial sector remains stable as it adapts to these changes, the report concluded.
A recent RBI report also noted that the Indian financial system remains resilient, benefiting from broader macroeconomic stability.
The banking sector is well-capitalized, reflecting improved risk absorption, while the NBFC sector and Urban Cooperative Banks also show progress.
RBI Deputy Governor M. Rajeshwar Rao recently highlighted that the Insolvency and Bankruptcy Code (IBC) has been crucial in improving bank asset quality and facilitating pre-admission debt settlements exceeding Rs 10 lakh crore since its introduction in 2016, further strengthening banks.
(With input from IANS)
