India’s largest banks are expected to enhance their asset quality this fiscal year, driven by record-breaking net incomes that are bolstering their balance sheets and improving underwriting standards, as reported by S&P Global Market Intelligence. The combined nonperforming loans (NPLs) of the three largest private and three largest public banks declined to $41.76 billion (Rs. 2.48 trillion) for the 12 months ending March 31, representing an 11% reduction from the previous year’s $33.47 billion (Rs. 2.79 trillion). This improvement occurred despite a 56.8% rise in HDFC Bank Ltd.’s NPLs following its merger with Housing Development Finance Corp. Ltd. Major Indian banks have reported unprecedented profits, driven by robust lending growth and improved asset quality. The State Bank of India (SBI), for example, saw a 20.6% increase in net income, reaching $8.04 billion (Rs. 670.85 billion). HDFC Bank’s net income soared by 39.3% to $7.68 billion (Rs. 640.42 billion). Other leading banks, such as Bank of Baroda Ltd., Punjab National Bank, Axis Bank Ltd., and ICICI Bank Ltd., also achieved record-high net income gains.
The overall increase in advances has boosted the return on average equity (ROAE). Axis Bank, in particular, reported the highest ROAE increase to 18.50%, while Punjab National Bank saw an increase to 8.56%. The average gross nonperforming assets (NPA) ratio of Indian banks is forecasted to improve to 3.1% by September from 3.2% a year earlier, according to the central bank’s Financial Stability Report. Stress tests conducted by the central bank indicate that commercial lenders have adequate buffers to maintain capital ratios above regulatory minimums even in adverse scenarios. Since the COVID-19 pandemic, retail loans have grown faster than loans to large businesses. India’s GDP is projected to grow by 7.0% this fiscal year, though credit growth is expected to slow to 14% in the upcoming fiscal year. Ongoing regulatory measures and strategic improvements in underwriting are anticipated to sustain this positive trend, further reinforcing the strength of the financial sector.
