Indian banks will likely maintain their strong earnings momentum in the final quarter of the current fiscal before rising interest rates start affecting credit growth, according to S&P Global Market Intelligence.

“For most of the key credit measures we look at for banks, things are on the up: credit losses have declined sharply; nonperforming assets are on the decline; higher interest rates are boosting net interest margins; and returns on average assets are recovering toward decade high numbers,” said Geeta Chugh, an analyst at S&P Global Ratings.

India is one of the fastest-growing major economies in the world with the International Monetary Fund (IMF) projecting that the country’s gross domestic product will grow 6.1 per cent in 2023 against 2.9 per cent expansion in the world economy. However, inflation has remained a worry. The Reserve Bank of India raised its benchmark lending rate to 6.5 per cent on February 08, the sixth tightening move since May 2022.

“The country’s ongoing economic recovery and improvement in corporate credit quality is driving credit costs to cyclical low levels and pushing asset quality higher, while stronger balance sheets, higher demand for working capital loans and the shift from capital markets to the banking sector is boosting bank loan growth,” Chugh said. 

“The unwinding of stresses in India’s banking system is continuing apace,” Chugh added.

Indian banks’ credit growth picked up in recent quarters to reach a 10-year high of 17.4 per cent in December 2022, according to RBI data.

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