Regarding the country's economic growth rate, S&P Global Ratings on Thursday said in its estimate that India will grow at an annual growth rate of 6.5-7 percent in the three financial years till March 2027. The agency said spending on infrastructure and private consumption will boost the pace of growth. In the global bank outlook report, S&P also said good economic growth prospects will continue to support banks' asset quality, while healthy corporate balance sheets, tighter underwriting standards and better risk management practices will support asset quality, PTI reported. And will stabilize.
Expectations of good economic prospects
The agency said structural reforms and good economic prospects will support the resilience of India's financial institutions. For the current financial year, the Reserve Bank of India has projected economic growth to be 7.2 percent, down from 8.2 percent in 2023-24. S&P Global said stronger bank capitalization coupled with higher demand will boost bank credit growth, but depress deposit growth.
Bad loans of banking sector will reduce
We expect the banking sector's bad loans to decline to about 3 per cent of gross loans by March 31, 2025, compared to our estimate of 3.5 per cent by March 31, 2024. This is due to healthy corporate balance sheets, strict underwriting standards and better risk management practices. Corporate borrowing has picked up, but capital expenditure-related growth may be delayed due to uncertain external conditions. There may be difficulty in maintaining the pace of deposits, which will lead to a weak loan-to-deposit ratio. Regardless, the overall funding profile of banks should remain strong.
Unsecured personal loans increased rapidly
Underwriting standards for retail loans in India are healthy, and defaults in this segment remain manageable. However, unsecured personal loans have increased rapidly and may contribute to incremental non-performing loans (NPAs). The rating agency further said that RBI is being more assertive and imposing heavier penalties on banks as it focuses on technology, compliance, customer complaints, data privacy, governance and Know Your Customer issues.
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