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 Informist, Thursday, Feb. 5, 2026

 

--S&P: Indian banking sector faces moderate risk from corporate stress 

--S&P: Indian banks can likely cope with non-performing loan formation 

--S&P: See Indian bks new corporate NPA formation at 1.1% for next 2 years 

--S&P: Extreme stress could wipe out full-yr earnings of some banks in India 

 

MUMBAI – Indian banks are facing moderate risk from corporate stress but are well placed to absorb fresh bad-loan formation over the next two years, with projected slippages lower than the past decade's average, S&P Global Ratings said in a sector stress-test report released Thursday. S&P said Indian banks are likely to remain resilient even under stress scenarios, supported by profitability, provisioning buffers and capitalisation, though pockets of corporate vulnerability remain.

 

"Indian banks can likely cope with non-performing loan formation. New corporate non-performing loan formation for the next two years will be 1.1% a year, according to our projections. This is lower than the average slippages observed over the past decade," S&P Global Ratings said.

 

The report, which assessed loan concentration and large-borrower default risks across South and Southeast Asian banking systems, flagged that concentration risks are significant for a few countries, but they are manageable for most others, including India.

 

However, S&P cautioned that risks are not absent in Indian corporates. About 23% of Indian corporate debt in the sample it studied falls in the 'B' category, indicating weaker credit quality and vulnerability to shocks, even as the broader system remains stable. 
 

Under its stress tests, S&P examined the impact of the default of a single large borrower on banks' earnings and risk-adjusted capital. It said prudential exposure limits and capital buffers reduce systemic risks, but some banks could still see sharp hits to profitability under extreme scenarios.

 

The agency noted that in an extreme stress case, full-year earnings of some banks in India could be wiped out, alongside peers in Malaysia and Indonesia, due to high single-name exposures relative to profits. However, S&P said the effect of a large borrower default would not necessarily translate into immediate solvency stress because banks typically spread provisions over multiple years and can draw on excess buffers built in recent periods.

 

The study assumes very low or zero recovery on large corporate loans in a default scenario to capture second-order contagion risks through supply chains and linked borrowers. While this likely overstates direct credit losses, S&P said it provides a cushion for unquantified spillover effects.

 

In its base case, S&P expects stability in credit conditions for banks in South and Southeast Asia, including India, supported by economic growth and stronger balance sheets. It added that adequate profitability and provisioning capacity should help banks cushion a moderate rise in credit losses at current rating levels.  End

 

Reported by Kabir Sharma

Edited by Tanima Banerjee

 

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