Indian banks are showing financial stability even as profit margins come under pressure after the RBI’s December 2025 repo rate cut, according to Systematix Institutional Equities. The report notes that lower lending rates have reduced banks’ interest income, dragging net interest margins, though slippages remain broadly controlled. Asset quality in January-March FY26 stayed stable across most banks, while deposit growth remained healthy and loan growth continued to hold up. Banks are also preparing for new ECL credit-loss rules.
Fitch Ratings says Indian banks are well placed to shift to the expected credit loss provisioning framework that begins April 1, 2027. Fitch expects sufficient capitalisation, though common equity tier 1 may dip slightly. Banks can use a four-year transition period as initial provisions run higher than forecast, which Fitch links to a positive outlook.
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The RBI plans to overhaul expected credit loss provisioning by introducing a staging framework for classifying assets under the ECL approach, moving away from the current incurred-loss based model. The central bank also clarified it will keep the existing 90 day overdue threshold for identifying non-performing assets, easing fears of a full rewrite of NPA rules.
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