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Banks across South and Southeast Asia are likely to face gradually building credit pressure amid global uncertainties, with Indian lenders remaining relatively resilient but exposed to margin compression and liquidity constraints, according to a recent report by Fitch Ratings.
The report noted that external factors such as geopolitical tensions could impact funding conditions and asset quality across the region. However, Indian banks are expected to remain relatively resilient due to strong structural fundamentals. Fitch said Indian lenders are better placed than many regional peers to handle 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, Indian banks may face pressure on earnings as liquidity tightens. The report said margin pressure could increase as the Reserve Bank of India's ability to inject liquidity becomes limited. It said, "margin pressure for Indian banks could increase... as the [RBI's] flexibility to inject... liquidity... has narrowed". Fitch added that continued global risks could reduce sector margins by 20-30 basis points by FY27, and may lower operating profits by around 30-40 basis points. Despite these challenges, the report said Indian banks remain stable, with sufficient earnings buffers to absorb potential stress. It also highlighted that the banking system's liquidity surplus has declined to about 0.5 per cent of deposits. Fitch noted that steps taken to support the rupee could further tighten liquidity, though currency volatility is unlikely to have a major direct impact on Indian banks. Overall, while banks in the region face gradual credit pressure, Indian lenders are supported by strong domestic funding and sovereign backing, helping maintain stable credit ratings. (ANI)
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