Fresh bad-loan generation may rise in FY27; private banks face greater pressure: Report

Fresh non-performing assets (NPA) in the banking sector are likely to increase in the current fiscal, with private sector banks expected to face relatively higher pressure due to their exposure to unsecured retail and micro, small and medium enterprise loans, according to a report released on Tuesday (October 27, 2026).Ratings agency Icra expects the trend of relatively higher loan slippages at private sector banks to continue in the second half of FY27, even as credit costs are projected to remain favourable and significantly below historical levels.According to the rating agency's estimates, the fresh NPA generation rate for public sector banks is projected at 0.8 per cent in FY27, while that for private sector banks is estimated at 2.5%.In absolute terms, fresh NPA is estimated at ₹1 lakh crore in FY27 for state-owned banks and ₹1.3 lakh crore for private banks, according to a report.The agency attributed the relatively higher slippages at private sector banks over the past two years to their higher share of unsecured retail and MSME loans.Despite the anticipated increase in fresh bad-loan generation, Icra expects the banking sector to maintain healthy profitability, supported by favourable credit costs and adequate capitalisation.The agency projected the banking sector's gross non-performing assets (GNPA) ratio at 1.7-1.8% by March 2027 from 1.7% in June 2026. The net NPA ratio is expected to remain at 0.4-0.5% against 0.4% in June 2026.Icra expects bank credit growth to remain healthy at 15.1-15.9% in FY2027, translating into incremental credit of ₹32.3-33.8 lakh crore.Credit growth stood at 15.9% in FY2026.However, geopolitical risks and inflationary pressures could pose challenges to its growth estimates, the agency said.Sustaining healthy domestic deposit growth after the deployment of available liquidity will also remain a key monitorable for banks in the second half of the fiscal.The reversal in the interest-rate cycle could support banks' net interest margins (NIMs), which had faced pressure during the declining rate cycle.The agency expects yields on advances to reprice faster than deposit rates, supporting a recovery in margins.Rising bond yields could also influence corporate borrowing decisions and support bank credit demand. However, the sustainability of the pickup in corporate lending will depend on whether the gap between bank lending rates and bond yields narrows, it added.Separately, Icra expects non-banking financial companies (NBFCs) to maintain double-digit growth, with assets under management (AUM) projected to expand by 15-17% in FY27 and 14-16% in FY28.However, borrowing costs are expected to rise. The cost of the outstanding debt stock could increase by up to 0.30%, while the average cost of funds in FY27 is projected to rise by 0.10-0.20%.NBFCs and housing finance companies together will require additional funding of ₹6.9-7.1 lakh crore in FY27 to support growth and refinance existing or maturing borrowings. Published - October 27, 2026 10:05 pm IST