New Delhi:
The gross non-performing assets (NPA) ratio of Indian banks may reduce by 0.4 percent to 2.4 percent by March 2025. A further decrease of 0.2 percent may be seen by next year. This information was given in a report by rating agency Fitch. The reduction in NPAs shows that the country’s economy remains strong and the banking sector is performing well.

Although stress is increasing in retail loans (particularly in unsecured loans), strong growth, recoveries and write-off of loans are expected to offset the increase in non-performing assets, the Fitch report said. Is.

Fitch said in the note that currently the pressure is focused on small unsecured personal loans of less than $600 (more than Rs 51,000). Its impact will be more visible on non-banking financial companies (NBFCs) and fintech companies focused on low income groups.

Growth in unsecured personal loans and credit card lending slows down in India

Unsecured personal loans and credit card borrowings grew at a compound annual growth rate of 22 per cent and 25 per cent respectively in the last three years (till FY24). After the increase in the risk weight associated with unsecured loans, this pace has come down to 11 percent and 18 percent respectively in the first half of the current financial year ending September 2024.

Domestic debt to be 42.9 percent of GDP in June 2024

Domestic debt in India was 42.9 percent of GDP in June 2024, which is lower than many countries in the Asia-Pacific region. The pressure on unsecured retail loans is increasing and it constitutes about 52 per cent of the total bad loans in H1FY25.

Indirect risks through fintech and non-banks

The report also notes that banks may have some indirect exposure through funding of non-banks and fintechs, which offer more loans to low-income borrowers. Borrowers whose income is not disclosed account for more than a third of the outstanding consumer credit in the financial system.