S&P Global Ratings states that Indian banks are effectively equipped to handle global uncertainties, tariffs, interest rate reductions, and a depreciating rupee, even with credit costs anticipated to increase by 80-90 basis points over the next two years because of challenges in unsecured retail, small business, and microfinance lending. The rating agency observed that banks are capable of handling increased credit expenses while keeping earnings similar to, or exceeding, regional counterparts, with pre-provision operating profits expected at 3.6%-3.7% of loans. Credit expansion in the banking industry is anticipated to pick up from H2 FY26, bolstered by reductions in goods and services tax, income tax concessions, and possible regulatory relaxations, with expected growth rates of 11.5%-12.5% during FY26 and FY27. Although overall asset quality may decline, non-performing assets (NPAs) are anticipated to stay at 3.0%-3.5%, with new NPA creation averaging 1.7%-1.8% because of slippages in the Small and Medium Enterprises (SME) and retail sectors. S&P noted that Indian banks' robustness is bolstered by minimal exposure to sectors impacted by tariffs, corporate deleveraging, and an emphasis on secured retail loans. Loans to vulnerable sectors like textiles and gems and jewellery represent only 2% of the overall total, while external borrowings are constrained at 5%, and 75% of corporate external commercial borrowings are hedged. Although banks may face limitations in financing private investments due to changing investor preferences for mutual funds, stocks, and real estate, they are likely to depend more on wholesale domestic and international debt for their funding needs. In general, the industry is regarded as ready for expansion, backed by solid corporate strength and strong risk tolerance capability.