The pressure on asset quality from the previous credit cycle is subsiding, creating a favorable business environment for banks in India. File | Photo source: Reuters
Fitch Ratings said on May 13 that Indian banks’ risk appetite from higher loan growth will remain a key driver of their creditworthiness despite improved financial performance. It said asset quality pressures from the previous credit cycle were subsiding, creating a favorable business environment. This increased the banks’ potential and appetite for development.
Bank lending grew by 16% in the fiscal year ended March 2024, in line with fiscal year 2023, exceeding 8% CAGR (compounded annual growth rate) during FY15-22. Retail lending accounts for around 10% of system lending and has grown at a 20% CAGR since FY21, driven by a shift to unsecured lending to boost margins, the US-based ratings firm said.
Immense private banks have gained significant market share in the last credit cycle and continue to grow rapidly, public banks have also returned to rapid growth but are lagging behind immense private banks, Fitch said in a report titled ‘Risk profile drives viability ratings of Indian banks despite improved performance.
Fitch said India’s household debt is among the lowest in the world, despite rising to about 40% of GDP from 38% in fiscal 2023. “Nonetheless, the Reserve Bank of India (RBI) has raised concerns about falling household savings rates, early arrears in settlement of liabilities, higher loans per borrower (43% of consumer loan borrowers had three live loans) and an augment in consumer loans, even though secured loans dominate banks’ loan books,” the rating agency said.
