
NEW DELHI: The rising stress levels in unsecured retail loan books of banks can spiral out of control and create asset quality risks this fiscal to the tune of 25% over the past fiscal’s level, an international rating agency has warned.
Private sector banks like HDFC Bank, Kotak Mahindra Bank among others which have declared their Q3 earnings have reported massive rise in their retail, agri and MFI books.
“We forecast the banks’ impaired loan ratio to fall by 40 bps to about 2.4% for the current financial year and by another 20 bps next fiscal, despite expecting new bad loans in FY25 and FY26 to be nearly 25% higher than in FY24” Fitch Ratings said in a report on Thursday.
Rapid retail lending growth in recent years, particularly unsecured loans, has heightened medium-term risks, the agency said, adding “however, we still expect the impaired-loan ratio to fall in FY25 and FY26, driven by robust loan growth, as well as recoveries and write-offs, which are expected to offset the increase in fresh bad loans.” The RBI expects the impaired loan ratio to fall in FY25 before rising to about 3% in FY26, from the 2.6% in the first half of FY25.
“We believe the difference from our forecast partly reflects variance of opinions on the timing and extent of risk crystallisation, banks’ exposure at risks, loan growth and the country’ overall economic performance,” the agency said.