Strong performance of Indian banks to continue: S&P

Indian banking sector profitability will stabilise at a healthy level, and asset quality will continue to improve, affirmed S&P Global Ratings on Thursday (May 25). The strong performance of Indian banks to continue, it added.

“Indian banks earnings will likely to remain healthy. The sector has improved substantially in the past seven years, from a period when many public-sector lenders were grappling with bad loans,” said S&P Global Ratings credit analyst Deepali Seth Chhabria.

A strong recovery is underway in the Indian banking sector, and lenders have just reported their best results in a decade, S&P Global Ratings added. It expects the sector profitability to stabilise at a healthy level, and that banks asset quality will continue to improve.

Indian banking profitability is benefiting from higher net interest margins and lower credit costs.

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“We estimate a system-wide return on average assets (ROAA) at 1.2 per cent for fiscal 2023 (year ending March 31, 2023). System-wide ROAA will likely hover around 1.1 per cent in fiscal 2024,” said S&P Global Ratings credit analyst Geeta Chugh, adding that the formation of new non-performing loans will remain at cyclical low levels, despite pressure from higher interest rates.

“A recovery in written-off accounts is also boosting the profitability of banks,” she added.

India’s strong economic performance is bolstering the banking sector. S&P Global Ratings still forecasts the country will grow 6-7 per cent annually until 2026 at least, making India the fastest-growing economy in Asia-Pacific, and the fastest-growing large economy globally.

(Inputs from agencies)