Indian banks' NPAs likely to decrease by 0.4 percent by March- Fitch

New Delhi New Delhi: According to rating agency Fitch, the gross non-executed assets (NPA) ratio of Indian banks may decrease by 0.4 percent to 2.4 percent by March 2025, after which it will decline by 0.2 percent in the next financial year. Stress in loans is increasing, especially in unprotected loans, strong growth, recovery and an increase in non-performing loans from right-offs, Fitch's report states.

It stated that currently, debt stress focuses in small unsafe individual debts of less than $ 600 (more than Rs 51,000). In addition, the risk of such risky loans of large Indian banks may be transported proportional to the overall financial system. Garrbannable financial companies (NBFCs) and Fintech have given more such risk loans to low-income borrowers by NBFCs and Fintech. Go

RBI hopes that the impaired debt ratio in the financial year 2024-25 (FY25) will decrease, after which it will increase to about 3 percent in FY26, while it was 2.6 percent in the first half of FY25 (1hfy25). “We believe this difference from our forecast shows the time and range of risk crystallization, risk of banks, debt growth, and opinion on India's economic performance,” the report stated.

In three years by FY24, unprotected personal loans and credit card lending increased by 22 percent and 25 percent of the compound annual growth rate. After an increase in risk load associated with unsafe loan, this speed slowed down by 11 percent and 18 percent year-per-year (YOY) respectively in the first half of September 2024 (1hfy25). The domestic product (GDP) is 42.9 percent, lower than many emerging markets in the Asia Pacific region. However, tension in unsafe retail loans is increasing, which is about 52 percent of the new poor retail loans in 1hfy25.

The report also mentions that banks may have some indirect risk through funding to non-banks and fintechs, which are more exposed to low-income borrowers. Such borrower, or whose income is not disclosed, makes a slightly more share of outstanding consumers in the financial system.