NPAs Can Increase by 25% in FY 25, 26 Due to Rising Stress Levels in Unsecured Retail Loans

New Delhi: Increasing stress levels in unsecured retail loan books can create asset quality risks, resulting in non-performing assets going up by 25 per cent over the past fiscal’s level in the financial years 2025 and 2026.

International agency Fitch has warned that private sector banks such as HDFC Bank, Kotak Mahindra Bank and others have shown massive increase in their retail, agriculture and MFI books, in their declared earnings for the Q3, reported The New Indian Express.

“We forecast the banks’ impaired-loan ratio to fall by 40 bps to around 2.4 per cent for the current financial year and by another 20 bps next fiscal, despite expecting new bad loans in FY25 and FY26 to be around 25 per cent higher than in FY24” Fitch Ratings said in a report Thursday (January 23).

The agency added that growth in rapid retail lending in recent years has heightened medium-term risks.

Unsecured personal loans and credit card borrowings increased at 22 per cent  and 25 per cent, respectively, in each of the past three years running up to FY24, but slowed to 11 per cent and 18 per cent, respectively in the first half of the current fiscal.

The development took place after the RBI hiked the risk weights attached to unsecured lending by 25 percentage points in November 2023.

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