S&P Global ratings: Indian banks on strong growth path amid global volatility

Indian banks are poised for steady growth over the next two years, buoyed by strong fundamentals and policy support, even as global economic headwinds and cautious lending practices temper the broader outlook, according to a recent report by S&P Global Ratings.

In its report titled “Indian Banks: Primed for Growth” , released in October 2025, S&P Global Ratings said India’s banking sector is entering a phase of sustained expansion, with credit growth projected between 11.5% and 12.5% over the next two fiscal years. The agency attributed this optimism to fiscal incentives, tax and GST rate cuts and structural resilience in the domestic economy. The report, authored by S&P credit analyst Geeta Chugh, highlighted that lower corporate leverage, healthy deposit bases, and improved asset quality continue to underpin the sector’s stability. Despite global pressures from tariffs, currency movements, and potential monetary easing, Indian banks are expected to maintain financial resilience, aided by improved corporate balance sheets and limited exposure to volatile external factors.

Chugh noted that Indian banks are well-positioned to absorb potential asset quality shocks, as stress tests applying Asia-Pacific default rates to over 2,000 Indian companies showed strong capacity to manage slippages. While lending to small businesses and unsecured retail segments may moderate, tax reliefs and regulatory easing are expected to support overall credit demand. The report also found that banks face minimal direct risk from a depreciating rupee, given that only 5% of their borrowings are external and 75% of corporate external commercial borrowings are hedged. Although margins may soften and net interest margins could narrow to around 3.4% amid potential policy rate cuts, S&P expects profitability to stay above long-term averages. The agency forecasts India’s real GDP growth to remain steady between 6.5% and 7% through FY2028, underpinning the credit expansion trend.

Experts view S&P’s assessment as a sign of confidence in the resilience of India’s financial system despite global volatility. Analysts note that while credit growth is set to strengthen, banks will need to diversify funding sources as deposit growth, at around 11%, may not fully keep pace with loan demand. Future challenges could stem from increased corporate leverage in emerging sectors such as renewable energy, semiconductors, and data centers, which carry higher execution and technology risks. Still, the sector’s improved fundamentals and prudent regulation position Indian banks for sustained, though measured, growth in the medium term.