Lower NPAs Give Banks More Cushion for a Slowdown

The banking cycle will eventually see another slowdown, but what I found interesting in SBI Chairman CS Setty’s comments is how differently banks are positioned today compared with earlier cycles. SBI’s gross NPA is currently around 1.47%, while net NPA is only about 0.42%. More importantly, the bank believes corporate balance sheets are also much healthier. This matters because when both lenders and borrowers enter a slowdown with stronger balance sheets, the system has a much better ability to absorb stress. Another point that stood out to me is SBI’s corporate credit pipeline of almost $54 billion. Demand is coming from areas such as renewable energy, battery storage, transmission, distribution and data centres. SBI is targeting around 14-15% overall credit growth, with corporate credit expected to grow at a similar pace. But I would not look at this only from the loan-growth angle. Setty also highlighted operational risks such as cybersecurity and fraud. As banking becomes increasingly digital, these risks are becoming just as important as traditional credit risk. In my view, this is an important change in the Indian banking story. Earlier cycles were often about cleaning up stressed loans and repairing balance sheets. Today, banks are entering the next phase with lower NPAs, stronger capital positions and healthier corporate borrowers. The real test will come whenever economic growth slows. If banks can maintain asset quality while continuing disciplined credit growth, it would show how much stronger the banking system has become structurally.