Fresh slippages in banking sector likely to rise in the near term: ICRA-ASSOCHAM Report

A report by ICRA and ASSOCHAM has said that fresh slippages in the banking sector are likely to increase in the near future, owing to emerging stress in the retail and Micro, Small, and Medium Enterprises (MSME) segments, even as overall asset quality remains strong. Despite this, the report stated the impact on overall asset quality would remain limited, with gross non-performing assets (GNPAs) and net NPAs (NNPAs) projected to stay at benign levels.

As per the report, the sector's headline asset quality metrics continue to improve, with GNPAs at a decadal low, supported by contained slippages and steady recoveries bringing down bad loans. Further, on the credit growth front, ICRA projects a marginally higher increase of ₹25–26 lakh crore, or 13.7-14.3% year-on-year growth for FY26. Credit expansion is expected to be ₹23.50-25 lakh crore for FY27.

Credit demand is likely to remain buoyant, with retail and MSME segments continuing to be the key growth drivers. The start of FY26 saw a slow credit offtake as banks remained cautious towards the retail segment and non-banking financial companies (NBFCs), while corporates turned to bond markets due to lower yields.

However, Credit growth accelerated by the end of the first half of FY26, and the momentum continued into Q3FY26, supported by sustained economic activity and demand for channel financing and retail loans following the goods and services tax (GST) cut on September 22, 2025.

Earlier, Minister of State for Finance Pankaj Chaudhary said that banks have written off loans worth ₹9.75 lakh crore in the last 11 financial years. The peak in write off occurred in FY20 at ₹1.59 lakh crore, and since then it has been declining to ₹47,568 crore in FY25. Banks have written off ₹31,723 crore in FY15, ₹40,416 crore in FY16, ₹68,308 crore in FY17, and ₹99,132 crore in FY18.

He stated, ‘Banks write off NPAs, including those in respect of which full provisioning has been made on completion of four years, as per RBI guidelines and policy approved by banks' boards. Such a write-off does not result in waiver of liabilities of borrowers, and therefore, it does not benefit the borrower.’

Further, he said the borrowers remain responsible for repayment, and banks continue to pursue recovery actions initiated in these accounts. He noted the recovery in written-off loans is a continuous process, and banks persistently pursue their recovery actions initiated against borrowers under various recovery mechanisms available to them.