Large Indian banks are expected to improve their asset quality in the current fiscal: S&P

India's largest banks are poised to improve their asset quality this fiscal year, supported by record net incomes enhancing their balance sheets and underwriting standards, according to S&P Global Market Intelligence. The cumulative nonperforming loans (NPLs) of the 3 largest private and 3 largest public banks fell to US$ 41.76 billion (Rs. 2.48 trillion) in the 12 months ending March 31, marking an 11% decrease from the previous year's US$ 33.47 billion (Rs. 2.79 trillion), despite a 56.8% increase in HDFC Bank Ltd.'s NPLs following its merger with Housing Development Finance Corp. Ltd. All major Indian banks reported record profits, driven by strong lending growth and enhanced asset quality, with the State Bank of India (SBI) seeing a 20.6% increase in net income to US$ 8.04 billion (Rs. 670.85 billion). HDFC Bank's income surged by 39.3% to US$ 7.68 billion (Rs. 640.42 billion). Other major banks, including Bank of Baroda Ltd., Punjab National Bank, Axis Bank Ltd., and ICICI Bank Ltd., also posted record-high net income gains.

Overall advances rose, boosting the return on average equity (ROAE). Axis Bank reported the largest ROAE increase to 18.50% and Punjab National Bank to 8.56%. The average gross nonperforming assets (NPA) ratio of Indian banks is expected to improve to 3.1% by September from 3.2% a year earlier, according to the central bank's Financial Stability Report. The central bank's stress test indicated that commercial lenders have sufficient buffers to maintain capital ratios above regulatory minimums even under adverse scenarios. Retail loans have grown faster than loans to large businesses since the COVID-19 pandemic. India's GDP is projected to grow by 7.0% this fiscal year. However, credit growth is expected to moderate to 14% in the new fiscal year. Continued regulatory measures and strategic underwriting improvements are expected to sustain this positive momentum, further strengthening the financial sector.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.