Banks’ credit costs to rise as tailwinds from recoveries fade

Asset quality to soften, weak loans will remain at 3-3.5%

- Palazhi Ashok Kumar

Indian banks credit costs will rise as the tailwinds from sharp recoveries fade and due to stress in segments such as unsecured retail, SME loans under rupees 1 million, and microfinance, S&P Global Ratings said on Wednesday.

Banks’ asset quality is expected to soften, weak loans will remain at 3.0%-3.5% and credit costs will rise to 80-90 basis points over the next two years.

Indian banks, however, are well-positioned to navigate global uncertainty, tariffs, rate cuts, and a weakening rupee. Key factors that contribute to Indian banks’ resilience include low exposure to tariff-hit sectors, deleveraging by companies, and a focus on secured retail lending.