Outlook for Bank Lending Cools
Indian banks are heading for a slight slowdown in lending over the next fiscal year, according to Crisil Ratings. The agency projects credit growth to cool to 13% in fiscal 2027, down from an estimated 14% in FY26. This shift reflects evolving economic conditions impacting the financial sector.
Bad Loans Expected to Tick Up
The trend of falling bad loans appears to be reversing. Crisil anticipates that the banking system's gross non-performing assets (NPAs) have hit a low point and could rise by roughly 0.20% to reach 2.5% by March 2027. This uptick means banks will need to closely watch asset quality as new pressures emerge.
Geopolitical Tensions and Domestic Issues
The conflict in West Asia presents a notable risk, especially for small and medium-sized businesses (MSMEs) that depend on the region for markets or raw materials. Industries like ceramics and diamond polishing are already affected.
Domestic regulatory matters are also a concern. These include Bihar's microfinance bill and the potential impact of Maharashtra's loan waiver plan on how customers repay loans.
Crisil officials did not provide details on potential aid for affected companies. They noted that government and central bank authorities would typically react to major disruptions. Crisil's current figures do not include any such support, reflecting uncertainty about how long and how severe external shocks might be.
Deposits Crucial for Sustaining Loan Growth
Beyond worries about loan quality, banks' success in attracting customer deposits is vital for maintaining lending growth. Crisil pointed out that a persistently high ratio of loans to deposits could push banks to use more securitization—selling off loans to investors—to manage their cash flow.
Attention will likely stay on how well banks attract deposits and manage their overall financial health in the coming months.