Indian banks performed robustly in 9MFY25, impaired loan ratio nearing trough: Fitch
The global rating agency - Fitch Ratings in its commentary has said that Indian banks have exhibited robust performance in the first nine months of the current financial year with the sector's impaired loan ratio close to the trough, and added that there is potential for improvement in impaired loan ratio for FY26.
Fitch also said that the improvements in key performance metrics of Indian banks in the past few years will provide strong support for their Viability Ratings (VRs). The Return on Assets (ROA) of Indian banking sector has improved by about 10bp to 1.4 per cent in 9MFY25 from FY24.
The rating agency said that Indian banks' risk appetites have been more calibrated since 2018, with efforts to diversify loans and improve the quality of corporate exposures contributing to lower bad loan formation. Further, it added that lower legacy bad loans drove improvement in banks' gross impaired loan ratios and earningsd.
However, agency noted that, these risk enhancements have yet to be fully tested, and banks have tended to vary risk appetite through cycles, such as growth in unsecured personal loans in recent years until regulatory measures discouraged this behaviour.
