Indian banks well-positioned to absorb higher credit cost, withstand global uncertainties, S&P says
- IBEF
- October 9, 2025
Indian banks are well-positioned to withstand global uncertainties, tariffs, rate cuts, and a weakening rupee, according to S&P Global Ratings, even as credit costs are expected to rise 80-90 basis points over the next two years due to stress in unsecured retail, small business, and microfinance loans. The rating agency noted that banks can absorb higher credit costs while maintaining earnings comparable to, or better than, regional peers, with pre-provision operating profits projected at 3.6%-3.7% of loans. Credit growth in the banking sector is expected to revive from H2 FY26, supported by goods and services tax cuts, income tax reliefs, and potential regulatory easing, with projected growth of 11.5%-12.5% over FY26 and FY27. While overall asset quality may soften, non-performing assets (NPAs) are expected to remain at 3.0%-3.5%, with new NPA formation averaging 1.7%-1.8% due to slippages in the Small and Medium Enterprises (SME) and retail segments.
S&P highlighted that Indian banks’ resilience is strengthened by low exposure to tariff-affected sectors, deleveraging by corporates, and a focus on secured retail lending. Exposure to vulnerable sectors such as textiles and gems and jewellery accounts for just 2% of total loans, and external borrowings remain limited at 5%, with 75% of corporate external commercial borrowings hedged. While banks’ ability to finance private investment may be constrained by shifting investor preferences toward mutual funds, equities, and real estate, they are expected to increasingly rely on wholesale domestic and international debt for funding. Overall, the sector is viewed as primed for growth, supported by strong corporate resilience and robust risk absorption capacity.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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