India’s financial sector is poised for continued resilience, bolstered by structural improvements and robust economic growth prospects, according to the S&P Global Ratings 2025 banking outlook.
“We anticipate asset quality will stabilize, with weak loans in the banking sector projected to decline to approximately 3.0 per cent of gross loans by March 31, 2025. This positive trend is supported by healthy corporate balance sheets and enhanced risk management practices,” said Deepali Seth-Chhabria, Analyst, S&P Global Ratings.
While underwriting standards for retail loans remain strong and delinquencies manageable, the rapid growth of unsecured personal loans could introduce some risks.
S&P Global foresees loan growth slightly outpacing nominal GDP, particularly in the retail segment. However, deposit growth may lag, potentially impacting credit-to-deposit ratios.
According to the rating agency, credit costs are expected to normalize from a decade-low of 0.8 per cent in fiscal 2024 to a range of 0.8 per cent – 0.9 per cent. Despite this, profitability should remain strong, with returns on average assets projected around 1.2 per cent in fiscal 2025, she further pointed out.
The Reserve Bank of India’s intensified regulatory oversight, focusing on compliance and governance, may increase compliance costs but will ultimately enhance financial stability. Overall, the outlook for India’s financial sector remains steady as it navigates these evolving dynamics, the report added.
A recent RBI report has also stated that the Indian financial system remains resilient and is gaining strength from broader macroeconomic stability.
The banking sector is well-capitalised and its unclogged balance sheet is reflective of higher risk absorption capacity while the NBFC sector and the Urban Cooperative Banks also continue to show improvements, the report stated,
RBI Deputy Governor M. Rajeshwar Rao earlier this month said that the Insolvency and Bankruptcy Code (IBC) has played a critical role in improving bank asset quality and facilitating substantial pre-admission settlements of underlying debts of over Rs 10 lakh crore since it was first introduced in 2016. This is helping to strengthen banks.
