Banks' Loan Growth Appetite to Drive Creditworthiness Assessments, Says Fitch

Fitch Ratings highlights Indian banks' increased lending appetite amid improved performance. Asset quality concerns have eased, boosting loan growth to 16% in FY24. Retail loans have grown significantly, with unsecured credit expanding margins. Large private banks lead growth, while state banks also expand. Despite low household debt, the RBI expresses concern about declining savings rates and higher consumer borrowing. Fitch emphasizes that risk appetite remains a key factor in banks' creditworthiness.

Fitch Ratings on Monday said Indian banks' risk appetite through higher loan growth will remain a key consideration for their creditworthiness despite improved financial performance.

It said asset quality pressures from the previous credit cycle are subsiding, creating a favourable business environment. This has bolstered banks' potential and appetite for growth.

Bank loans grew by 16 per cent in the financial year ended March 2024, similar to FY23, exceeding the 8 per cent CAGR (compound annual growth rate) over FY15-FY22.

Retail loans constitute around 10 per cent of system loans, and grew at a 20 per cent CAGR since FY21, fuelled by a shift towards unsecured credit to expand margins, the US-based rating firm said.

Large private banks gained significant market share in the last credit cycle and continue to grow rapidly; state banks also returned to brisk growth but lagged large private banks, Fitch said in a report titled 'Risk profile weighs on Indian banks' viability ratings despite improved performance'.

Fitch said India's household debt is among the lowest in the world, despite rising to around 40 per cent of GDP from 38 per cent in FY23.

''Nonetheless, the Reserve Bank of India (RBI) has expressed concerns regarding the fall in the household savings rate, early delinquencies, higher loans per borrower (43 per cent of consumption loan borrowers had three live loans), and surge in consumption loans, even though secured loans dominate banks' loan books,'' Fitch said.

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