Rising Bad Assets to Impact Banks' Future Profitability

India Ratings and Research has expressed concerns about Indian banks' future profitability, citing a rise in bad assets that could impact financial performance. Profitability peaked in FY24 and is expected to decline further due to increasing slippages and credit costs. Unsecured retail exposure poses manageable risks without systemic threats.

Indian banks may face reduced profitability due to increasing bad assets, according to India Ratings and Research. The report indicates that banks reached peak profitability in FY24, with expectations of declining profits in FY26 as bad assets rise.

Karan Gupta, head and director of financial institutions at the agency, mentioned that stress primarily from unsecured retail exposure is manageable. The under Rs 50,000 retail unsecured segment makes up about 0.4% of banking credit.

Additional challenges include new project finance norms requiring higher provisioning and a transition to expected credit loss frameworks. Although regulatory measures have strengthened resilience, future profitability pressures remain a concern.

(With inputs from agencies.)