UBS Report: Indian Banks Face Elevated Slippages Despite Falling Credit Costs
UBS expects a decline in credit costs for Indian banks in the latter half of FY26 despite near-term asset quality pressures. Monitoring PAR trends remains crucial, with West Bengal and Maharashtra key regions. Economic growth slowdowns may impact credit growth and banking sector margins.
- Country:
- India
According to a report by global financial services firm UBS, Indian banks are anticipated to experience a decreasing trend in credit costs during the second half of the financial year 2025. However, immediate slippages are projected to remain high, posing a challenge to the banks' asset quality.
The report underscores the significance of observing Portfolio at Risk (PAR) trends, particularly in states like West Bengal and Maharashtra. These states comprise around 17% of the market share, yet early delinquency trends have stayed relatively stable. Notably, Non-Banking Financial Companies (NBFCs) have shown improved delinquency trends during the mid-2025 period, though banks are still grappling with high forward flows to non-performing assets.
While there is an expected easing of credit costs, the report warns of potential economic slowdowns potentially affecting credit growth and leading to increased non-performing assets. Rising deposit costs may further strain margins, with banks anticipated to face stable-to-declining margins in the near term.
(With inputs from agencies.)
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