Gross non-performing assets (NPA) ratio of the banks is expected to deteriorate in the current financial year due to increase in slippages in select pockets, stress in unsecured personal loan.
According to the CareEdge report, the schedule commercial banks' GNPA ratio is projected to marginally deteriorate albeit remain in the same broad range from 2.3% by FY25 end to 2.3%-2.4% by FY26.
Key downside risks include deteriorating asset quality from elevated interest rates, regulatory changes, and global headwinds such as tariff increases, report added.
"With the personal loans segment facing stress, the overall fresh slippages are expected to rise, and recoveries/upgrades are likely to taper gradually," Sanjay Agarwal, Senior Director at CareEdge Ratings was quoted saying in a report.
The GNPA ratio has been trending downward since March 2019, which continued in FY20 and FY21, notwithstanding the stress during the pandemic, partly supported by regulatory forbearance on recognition of NPAs and moratorium, report said.
The asset quality has improved due to recoveries, higher bank write-offs, lower slippages, etc. The slippages have declined across bank groups. This reduction continued in FY25, and by the end of Q4FY25, the GNPA ratio had touched 2.3 percent, report added.
Further, on the credit cost front, the report said that it is expected to inch up in FY26 as banks continue to have sufficient headroom in the provision coverage ratios.
Private banks' credit cost which was at 0.46 percent in FY25, is expected to increase to 0.47 percent. State-owned banks' credit coat is expected to increase to 0.43 percent in FY26, as compared to 0.38 percent.
The credit cost declined from 0.86 percent in FY22 to 0.47 percent in FY24 and 0.41 percent in FY25 for banks.
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