Fitch Ratings, on May 13, said Indian banks' risk appetite through higher loan growth will remain a key consideration for their creditworthiness despite improved financial performance. It said asset quality pressures from the previous credit cycle are subsiding, creating a favourable business environment. This has bolstered banks' potential and appetite for growth.
Bank loans grew by 16% in the financial year ended March 2024, similar to FY23, exceeding the 8% CAGR (compound annual growth rate) over FY15-FY22. Retail loans constitute around 10% of system loans, and grew at a 20% CAGR since FY21, fuelled by a shift towards unsecured credit to expand margins, the US-based rating firm said.
Large private banks gained significant market share in the last credit cycle and continue to grow rapidly, public banks also returned to brisk growth, but lagged large private banks, Fitch said in a report titled 'Risk profile weighs on Indian banks' viability ratings despite improved performance'.
Fitch said India's household debt is among the lowest in the world, despite rising to around 40% of GDP from 38% in FY23. "Nonetheless, the Reserve Bank of India (RBI) has expressed concerns regarding the fall in the household savings rate, early delinquencies, higher loans per borrower (43% of consumption loan borrowers had three live loans), and surge in consumption loans, even though secured loans dominate banks' loan books," the rating agency said.
