Indian banks are bracing for a decline in profitability by the fiscal year 2025-26, attributed to increasing delinquencies in unsecured loans and rising credit costs, as reported by India Ratings.
The agency indicated that the rapid financial improvement observed from 2021 to 2024 is expected to peak in 2024-25, marking an inflection point for the sector.
Delinquencies are notably rising in personal loans, credit cards, and microfinance, particularly among self-employed individuals and younger borrowers. This trend has raised concerns following the COVID-19 pandemic, which adversely affected borrowers' incomes.
In response to growing risks of bad loans, the Reserve Bank of India (RBI) implemented stricter capital requirements for banks in late 2023, resulting in a slowdown in personal and credit card lending.
Consequently, India Ratings has revised its credit growth forecast for 2024-25 from 15% to 13.5%. Loan growth is anticipated to range between 13-13.5%, while deposit growth is projected at 12-13% for 2025-26, amid fierce competition for low-cost deposits.
Non-banking financial companies (NBFCs) are also expected to face challenges, with anticipated slowdowns in loan growth and increased credit costs, potentially intensifying profitability pressures as borrower over-leveraging continues.