New Delhi
Indian banks are well-prepared to face global uncertainties, tariff changes, interest rate cuts, and currency fluctuations, according to a report by S&P Global Ratings released on Wednesday. The report said that strong financial resilience among Indian corporates and a focus on secured lending have helped the country’s banking sector stay stable.
Key factors supporting banks include low exposure to tariff-affected industries, corporate deleveraging, and steady retail loan portfolios. As of August 22, exposure to the textile and jewellery sectors, both sensitive to tariff shocks, was just 2 percent of total loans.
While S&P expects asset quality to soften, weak loans will likely remain at 3.0–3.5 percent, and credit costs could rise to 80–90 basis points over the next two years due to pressure in unsecured retail, SME, and microfinance loans.
Despite these challenges, the report said banks face minimal risk from a weakening rupee, since external borrowings form only 5 percent of total liabilities, and 75 percent of corporate foreign borrowings are hedged.
S&P credit analyst Geeta Chugh noted that stress tests show Indian banks can easily absorb potential slippages and continue to grow. The new non-performing loan (NPL) rate in corporate lending is expected to average 1.1 percent, while overall NPL formation could reach 1.7–1.8 percent due to SME and retail exposure.
The report added that pre-provision operating profits at 3.6–3.7 percent of loans will help banks manage higher costs while maintaining earnings similar to or better than regional peers.
S&P forecasts credit growth of 11.5–12.5 percent for Indian banks during FY26–FY27, supported by sound balance sheets and prudent risk management.
