Stronger Balance, Brighter Outlook—Fitch Cheers Indian Bank Revival

Image Source: The Economic Times

Rating agency Fitch Ratings has reaffirmed its positive outlook on Indian banks, citing better core financial metrics as the strongest driver of better Viability Ratings (VRs). The agency noted that improved asset quality, better earnings, and calibrated risk appetite have helped Indian banks better withstand financial stress and economic cycles.

1. What's Behind the Upgrade?

Fitch pointed out that gross impaired loan ratios have fallen, owing to reduced legacy bad loans and better underwriting standards.
Return on Assets (ROA) improved to 1.4% during the first nine months of FY25, with private banks doing better than state-owned peers.
Banks have been displaying more disciplined risk-taking, particularly following regulatory scrutiny on unsecured lending.

2. Who's Leading the Pack?

Punjab National Bank, Union Bank of India, and Bank of India had their VRs revised upwards in March 2025.
ICICI Bank's best VR amongst Indian rated banks by Fitch stands at bb+, reflecting its stronger capital buffers and stable earnings.
Fitch stated that 'b' category banks may well see upgrades once more if they continue to maintain improving asset quality and capitalisation.

3. What It Means for the Sector

While Issuer Default Ratings (IDRs) are firm—underpinned by views of sovereign support—the health of banks internally is certainly on the recovery path.
Fitch expects loan growth to pick up as policy rates ease and liquidity improves, although it warns that risk profiles must remain appropriate.

Sources: Fitch Ratings, The Hindu BusinessLine, Business Standard