India’s banks supported by infrastructure push and demand

Weak loans are projected to rise to 3.1% in March 2026.

India's infrastructure spending and private consumption will support the resilience of India’s financial institutions, according to S&P Global Ratings.

The ratings agency sees good prospects for the economy over the next couple of years despite emerging strains. Its low US trade exposure also reduces tariff risks, said Deepali V Seth Chhabria, primary credit analyst, S&P Global Ratings.

However, possible impacts such as trade reduction to India could hit a few sectors such as steel and chemicals, Seth Chhabria wrote in S&P’s midyear outlook 2025.

The banking sector’s weak loans are also projected to rise to 3.1% by March 2026 due to pockets of stress in some retail segments— namely, unsecured loans and microfinance loans.

“We believe underwriting standards for secured retail loans are healthy, and delinquencies in this segment remain manageable,” Seth Chhabria wrote.

Tightening regulations and stricter underwriting standards in microfinance should contain asset quality strains, she added.

“India's sound growth prospects and falling interest rates will also support banks' asset quality,” Seth Chhabria said.

Strengthening internal control and risk management practices in unsecured retail loans, particularly unsecured personal loans and microfinance loans, will offset risk accumulation by slowing household leverage for low-income borrowers, S&P added.

“We expect NPLs in this segment to peak in fiscal 2026,” Seth Chhabria said.