Indian Banks Face Elevated Slippages, Credit Costs To Ease In H2FY26

Credit costs in Indian banks are expected to continue in declining trend in the second half of the current financial year 2025, though near-term slippages are likely to remain elevated, according to a report by global financial services firm UBS. The report highlighted that while credit costs are expected to ease in H2FY26 compared to FY25, the near-term asset quality pressure, especially for banks, will persist due to high forward flows. 

It stated "We continue to expect a decline in credit costs in H2FY26 (vs FY25) but expect near-term slippages (Q2) to remain elevated due to high forward flows, especially for banks".

It emphasized that monitoring of PAR (Portfolio at Risk) 1-90 trends remains crucial, particularly in states such as West Bengal (WB) and Maharashtra (MH), which together account for approximately 17 per cent of the market share. In these regions, early delinquency trends have remained relatively flat.

NBFCs, in comparison, have shown better delinquency trends over the June-August 2025 period. According to the report, early delinquency is coming down; however, forward flows to non-performing assets (NPAs) continue at a high pace, especially in banks.

The report noted that PAR 1-90 for banks declined by 30 basis points (bp) to 3.8 per cent, while for NBFCs, it dropped by 80bp to 3.2 per cent.

Portfolio at Risk (PAR) is a financial metric used to assess the credit risk of a lender's loan portfolio.

For banks and NBFCs, PAR 1-30 decreased by 30bp and 20bp respectively, while PAR 31-90 was flat for banks and down 60bp for NBFCs.

The report further cautioned that while India's economic growth is expected to remain healthy, any sustained slowdown could impact the banking and finance sector. This may lead to slower credit growth, higher risk of NPAs, and pressure on fee income and net interest margins (NIM). 

Rising deposit costs could also strain margins, with the report expecting stable-to-declining margins for banks in the near term.

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)

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