Banks performed robustly during nine months of current fiscal, says Fitch

New Delhi: Fitch Ratings on Monday said Indian banks have performed robustly in the first nine months of FY25 with the sector’s impaired loan ratio close to the trough. Fitch said improvements in key performance metrics of Indian banks in the past few years will provide strong support for their Viability Ratings (VRs).

The global rating agency also said that Indian banks’ risk appetites have been more calibrated since 2018, with efforts to diversify loans and improve the quality of corporate exposures contributing to lower bad loan formation. Lower legacy bad loans drove improvement in banks’ gross impaired loan ratios and earnings, Fitch said.

However, these risk enhancements have yet to be fully tested, and banks have tended to vary risk appetite through cycles, such as growth in unsecured personal loans in recent years until regulatory measures discouraged this behaviour, Fitch noted.

“Indian banks performed robustly in the first nine months of FY25 (9MFY25), with most key financial metrics improving to beyond expectations. The sector’s Return on Assets improved by about 10bp to 1.4 per cent in 9MFY25 from FY24,” it said. “The sector’s impaired loan ratio is close to the trough, but potential remains for improvement in FY26,” Fitch said.

The ratio fell by roughly 40bp from FY24 to 2.4 per cent in December 2024, with PNB experiencing the biggest decrease, mainly driven by legacy bad loan write-offs,

Fitch said.