Indian Banks May See Higher Fresh NPAs In FY27 Amid MSME, Retail Loan Stress: ICRA

New Delhi, Oct 28 (KNN) Indian banks are likely to see a modest increase in fresh non-performing assets (NPAs) in FY27 as stress emerges in micro, small and medium enterprises (MSMEs) and unsecured retail loan portfolios, rating agency ICRA said.

Fresh NPA generation is expected to increase for both public and private sector banks, reflecting the impact of higher interest rates, inflationary pressures and global uncertainties on borrowers, according to the agency.

Public sector banks (PSBs) are projected to see fresh NPA generation rise to 0.8 per cent in FY27 from 0.7 per cent in FY26. For private sector banks (PVBs), the ratio is expected to increase to 1.6 per cent from 1.4 per cent.

Fresh slippages are estimated at around Rs 1 lakh crore for PSBs and Rs 1.3 lakh crore for private sector banks, reported Businessline.

Private Banks Face Greater Asset Quality Pressure

Private lenders are expected to face relatively greater pressure because of their larger exposure to unsecured retail loans and MSME credit, segments that have shown early signs of stress over recent quarters.

The expected increase in fresh NPAs signals a moderation in the improvement in banks’ asset quality after several years of steady progress.

Global Uncertainties Add To Borrower Stress

Geopolitical uncertainties could further affect borrowers’ repayment capacity, with elevated crude oil prices and supply-chain disruptions posing risks for small businesses and retail customers.

Higher input costs and external uncertainties could place additional pressure on borrowers already facing financial constraints, potentially contributing to an increase in loan defaults.

Bank Profitability Expected To Remain Stable

Despite the projected rise in fresh NPAs, the banking sector is entering FY27 from a position of relative strength, with overall gross NPA levels expected to remain contained.

ICRA expects credit costs to increase marginally but remain benign and well below historical averages, supporting broadly stable and comfortable profitability for banks in 2026-27.

The outlook suggests that while asset quality pressures may increase in specific lending segments, the overall banking system is expected to remain resilient during the year.

(KNN Bureau)