Indian banks are well-equipped to manage global economic challenges such as tariffs, interest rate cuts, and a weaker rupee, S&P Global Ratings said in a report on Wednesday. The agency noted that the improving financial strength of Indian corporates and banks’ limited exposure to tariff-affected sectors have supported their resilience. Deleveraging across industries and a focus on secured retail lending have further strengthened balance sheets.
S&P said asset quality may soften, with weak loans expected to stay between 3 and 3.5 percent, while credit costs could rise to 80–90 basis points in the next two years due to stress in unsecured retail, small business, and microfinance segments. As of Aug. 22, exposure to tariff-hit sectors such as textiles and gems, and jewelry made up just 2 percent of total loans.
External risks remain contained, with foreign borrowings at only 5 percent and most corporate external commercial loans hedged. Analyst Geeta Chugh said that scenario analysis shows banks can absorb potential slippages, as new nonperforming loans in corporate lending are likely to average 1.1 percent annually over the next two years.
S&P expects the overall rate of new bad loans to reach 1.7–1.8 percent, driven by higher stress in SMEs and retail sectors. Strong pre-provision operating profits of about 3.6–3.7 percent of loans are expected to offset higher costs. The firm forecast credit growth of 11.5–12.5 percent in fiscal years 2026 and 2027, supported by cautious yet steady lending.
S&P said asset quality may soften, with weak loans expected to stay between 3 and 3.5 percent, while credit costs could rise to 80–90 basis points in the next two years due to stress in unsecured retail, small business, and microfinance segments. As of Aug. 22, exposure to tariff-hit sectors such as textiles and gems, and jewelry made up just 2 percent of total loans.
External risks remain contained, with foreign borrowings at only 5 percent and most corporate external commercial loans hedged. Analyst Geeta Chugh said that scenario analysis shows banks can absorb potential slippages, as new nonperforming loans in corporate lending are likely to average 1.1 percent annually over the next two years.
S&P expects the overall rate of new bad loans to reach 1.7–1.8 percent, driven by higher stress in SMEs and retail sectors. Strong pre-provision operating profits of about 3.6–3.7 percent of loans are expected to offset higher costs. The firm forecast credit growth of 11.5–12.5 percent in fiscal years 2026 and 2027, supported by cautious yet steady lending.
