S&P Global Ratings on Thursday said that non-performing assets (NPAs) of banks were expected to decline to 5-5.5 per cent of the total advances by March 2024. According to the latest Financial Stability Report, published by the RBI, the gross non-performing assets (GNPA) declined to a six-year low of 5.9 per cent in March 2022. 

“We project the banking sector’s weak loans will decline to 5-5.5 per cent of gross loans by March 31, 2024. Likewise, we forecast the credit costs to stabilise at 1.5 per cent for fiscal 2023 and further normalise to 1.3 per cent, making credit costs comparable to those of other emerging markets and India’s 15-year average,” the rating agency said in a report. 

The small and mid-size enterprise sector and low-income households were vulnerable to rising interest rates and high inflation, but these risks would be limited, the agency added.

With an economic pick-up, residual stress for these segments should start abating, it said, adding that NPA recoveries were likely to also gain momentum. 

It also said that India’s economic growth prospects should remain strong over the medium term, with the GDP expanding 6.5-7 per cent annually between FY24 and FY26. 

The economy’s long-term higher growth rate versus peers highlights its historical resilience. India’s wide range of structural trends, including healthy demographics and competitive unit labour costs, worked in its favour, it noted.