Indian banks' bad loans likely to decline further despite economic uncertainty: S&P Global Market Intelligence
New Delhi, June 10
Asset quality at India's leading banks is expected to improve further in the current fiscal year despite global and domestic economic headwinds, according to an analysis by S&P Global Market Intelligence.
The report, titled "Lower bad loans at Indian banks offer respite amid economic uncertainty", said that major lenders are likely to witness a further decline in bad-loan ratios even as they navigate challenges arising from the ongoing conflict in the Middle East and the prospect of weak rainfall.
Data compiled by S&P Global Market Intelligence showed that nonperforming loans at India's largest public and private sector banks have continued to trend lower, reflecting stronger balance sheets and improved recovery mechanisms.
According to the analysis, the nonperforming assets (NPA) ratio of State Bank of India is projected to decline to 0.92 per cent in the fiscal year ending March 31, 2027, from 0.96 per cent as of March 31, 2026.
Similarly, HDFC Bank Ltd. is expected to report a two-basis-point reduction in its bad-loan ratio to 0.76 per cent by March 31, 2027.
The analysis noted that "asset quality at major Indian banks is expected to improve further, despite economic challenges from the war in the Middle East and anticipated weak rainfall."
However, the report highlighted pressure on profitability indicators, particularly net interest margins (NIMs), across the banking sector.
"Net interest margins (NIMs) at all major Indian banks declined in the quarter ended March 31," the analysis said.
Axis Bank reported a 15-basis-point quarter-on-quarter decline in its NIM to 3.39 per cent, while State Bank of India posted a 14-basis-point decline to 2.71 per cent during the same period.
Despite the margin compression, some lenders maintained their outlook. State Bank of India retained its full-year margin guidance at 3 per cent. Bank of Baroda, which reported a net interest margin of 2.79 per cent in the quarter ended March 2026, projected its full-year NIM in the range of 2.75 per cent to 2.95 per cent.
The report also pointed to weakness in banking stocks amid broader market volatility.
"Eighteen of the 20 largest listed banks in India also saw their market capitalizations drop in the quarter, driven primarily by a broad-based sell-off across sectors amid geopolitical tensions," the analysis said.
According to S&P Global Market Intelligence, the improvement in asset quality could provide some relief to lenders as they contend with external uncertainties and softer earnings growth pressures.
— ANI
Reader Comments
As an investor, I'm cautiously optimistic. Banking stocks took a hit recently, but if NPAs keep falling, we might see a turnaround. However, the decline in NIMs is worrying—banks need to manage their cost of funds better. Let's hope the RBI steps in if needed. 🇮🇳
This is reassuring for common citizens like me who have deposits in these banks. The improved recovery mechanisms are a result of better bankruptcy laws and digital tracking. But I hope banks don't get complacent—one bad monsoon or global shock could reverse the trend. 💼
While lower NPAs are welcome, I think we need to ask why NIMs are falling. Is it because banks are cutting lending rates to stay competitive? Or is it due to rising deposit costs? Either way, the banking sector needs to balance profitability with asset quality. 🤔
Impressive resilience by Indian banks despite global headwinds. The improvement in asset quality is a testament to better risk management post the 2016-2018 NPA crisis. However, the margin pressure and stock sell-off suggest investors are still wary. Let's hope SBI and HDFC can maintain their guidance. 💪
As someone who works in finance, I find this data encouraging but not surprising. The IBC framework has significantly improved recovery. My concern is the rural sector—if weak rainfall hits agriculture, farm loans could turn bad. The government needs to ensure timely credit support to farmers. 🌾
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