NEW DELHI: Indian banks have delivered a robust performance in the first nine months of FY25, with key financial metrics surpassing expectations, according to Fitch Ratings. The impaired loan ratio of Indian banks has neared its lowest point, falling by approximately 40 basis points from FY24 to 2.4 per cent in December 2024.
Punjab National Bank (PNB) recorded the most significant decline, primarily due to legacy bad loan write-offs.
Fitch noted that sustained improvements in banks’ financial health will continue to support their Viability Ratings (VRs).
The agency highlighted that since 2018, Indian banks have adopted a more calibrated approach to risk, focusing on loan diversification and better corporate exposure management, leading to a reduction in bad loan formation.
Lower legacy bad loans
Lower legacy bad loans have played a key role in enhancing asset quality and earnings of Indian banks. The sector’s return on assets (ROA) improved by about 10 basis points to 1.4 per cent in 9MFY25 compared with FY24, reinforcing the positive trajectory.
While these improvements mark a significant step forward, Fitch cautioned that risk management practices are yet to be fully tested across economic cycles.
The recent expansion in unsecured personal loans, followed by regulatory tightening, reflects how banks have adjusted their risk appetite in response to evolving conditions.
Looking ahead, Fitch expects further scope for improvement in the impaired loan ratio in FY26, backed by ongoing efforts to strengthen asset quality and credit discipline.
