Mumbai: Fitch Ratings warned that increasing tension in unsafe retail portfolio can create a challenge for the property quality of banks in the country in 2025.
While the ratio of bad loans in the banking sector is decreasing, new bad loans are likely to increase significantly.
Although the NPL ratio of the country’s banks is expected to be reduced to 2.40 percent at the end of the current financial year, it is expected to increase by 20 basis points in FY 2026. Dearly debt will increase due to the increasing rate of lapse in unsafe retail debt.
Fitch says that rapid growth in retail debt, especially unsafe loans has increased the risk in the moderate period.
The three years ending the financial year 2024 have seen an increase of 22 percent and 25 percent in unprotected individual loans and credit card borrowings respectively. However, in the first six months of the current financial year, this rate has slowed down to 11 percent and 18 percent. The deduction is due to some steps taken by the Reserve Bank.
While at the end of June 2024, domestic loans in India were 42.90 percent of GDP, unsafe loans in the first half of FY 2025 were 52 percent of the new retail bad loans.
Concern has also been expressed that about fifty percent of unsafe loans have also received safe loans like housing or vehicles and in the event of default, these loans can also be affected.
