Major Indian banks are likely to see further declines in their bad-loan ratios in the current fiscal year, despite economic headwinds from the war in the Middle East and anticipated weak rainfall, S&P Global Market Intelligence said in an analysis. "Asset quality at major Indian banks is expected to improve further, despite economic challenges from the war in the Middle East and anticipated weak rainfall," the analysis said. The report was titled "Lower bad loans at Indian banks offer respite amid economic uncertainty".
ASSET QUALITY PROJECTIONS
State Bank of India's nonperforming asset ratio is projected to fall to 0.92% in the fiscal year ending 31 March 2027, from 0.96% as of 31 March 2026, according to the analysis. HDFC Bank is expected to report a two-basis-point reduction in its bad-loan ratio, to 0.76%, by 31 March 2027.
MARGINS UNDER PRESSURE
The report highlighted pressure on profitability. "Net interest margins (NIMs) at all major Indian banks declined in the quarter ended March 31," the analysis said. Axis Bank's net interest margin fell 15 basis points quarter on quarter to 3.39%, while State Bank of India's declined 14 basis points to 2.71%.
Some lenders maintained their outlook despite the compression. State Bank of India kept its full-year margin guidance at 3%, while Bank of Baroda, which reported a net interest margin of 2.79% in the quarter ended March 2026, projected a full-year margin of 2.75% to 2.95%.
Bank shares also came under pressure. "Eighteen of the 20 largest listed banks in India also saw their market capitalizations drop in the quarter, driven primarily by a broad-based sell-off across sectors amid geopolitical tensions," the analysis said.