Amid growing global uncertainties, banks across South and Southeast Asia are expected to face increasing credit pressure, though Indian lenders are likely to remain comparatively stable, according to a recent report by Fitch Ratings.
The report highlighted that external risks such as geopolitical tensions could affect funding conditions and asset quality across the region. These factors may gradually weaken the overall banking environment in multiple countries.
However, Indian banks are seen as more resilient due to strong structural fundamentals. Fitch stated that domestic lenders are in a better position than many regional peers to manage moderate stress in operating conditions. It said, “Indian banks appear better placed than many regional peers to absorb a moderate deterioration in operating conditions.”
At the same time, pressure on earnings may rise as liquidity conditions tighten. The report pointed out that margins could come under strain as the Reserve Bank of India’s ability to inject liquidity becomes more limited. It said, “margin pressure for Indian banks could increase… as the RBI’s flexibility to inject liquidity has narrowed”. Fitch added that ongoing global risks may reduce sector margins by 20-30 basis points by FY27 and lower operating profits by around 30-40 basis points.
Despite these challenges, Indian banks are expected to remain stable, supported by sufficient earnings buffers to absorb stress. The report also noted that the banking system’s liquidity surplus has declined to around 0.5% of deposits.
Additionally, measures taken to support the rupee may further tighten liquidity conditions. However, currency volatility is unlikely to have a significant direct impact on Indian banks.
Overall, while banks across the region may face rising credit pressure, Indian lenders continue to benefit from strong domestic funding and sovereign support, helping maintain stable credit ratings.
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