Banks Hike Write‑Offs, Signalling Stress in Retail Loans

India’s banking system is showing signs of strain beneath the surface. While headline asset quality metrics remain relatively stable, a noticeable uptick in loan write‑offs by major lenders suggests that underlying stress, especially in the retail and unsecured credit segments, is prompting banks to adjust their balance sheets more aggressively. This trend reflects a cautious stance by lenders as they prepare for possible future credit challenges.

Why Write‑Offs Are Rising?

In the December quarter of FY26, the five largest private banks in India increased their loan write‑offs by more than 22% year‑on‑year, amounting to ₹12,121 crore. These actions came even as headline non‑performing asset ratios stayed relatively benign, indicating that banks are taking a proactive approach to cleaning up their books rather than reacting to a sudden spike in bad loans.

Write‑offs occur when a bank removes a loan from its balance sheet because it expects little realistic chance of recovery. Importantly, a write‑off is an accounting treatment rather than a waiver of the borrower’s legal obligation. Banks first set aside provisions over time against potential losses; once that buffer is fully in place, the loan can be written off. This helps clean up the presentation of the balance sheet and can improve reported health metrics, even if the actual economic loss has already been recognised.

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The rise in write‑offs in the latest quarter appears to have been influenced by heightened regulatory expectations from the Reserve Bank of India (RBI). The central bank has signalled greater scrutiny of unsecured consumer lending, prompting banks to build stronger buffers against potential defaults.

Retail and Unsecured Loans Under Pressure

Retail and unsecured lending, such as personal loans, credit cards, and non‑collateralised consumer credit — has expanded rapidly in recent years. While such growth supports consumption and bank profitability, it also carries higher credit risk relative to secured lending like mortgages.

Industry analysts have pointed out that non‑performing accounts and early delinquency indicators have climbed in unsecured segments. A report from a leading policy institute noted that personal loans and credit card receivables showed upticks in stress metrics, and banks were observing more accounts entering early overdue categories (where payment is overdue but not yet classified as fully non‑performing).

This trend helps explain why banks might choose to take earlier write‑offs: they prefer to clean up exposures and recognise the losses now rather than let them accumulate further and affect profitability later.

What This Means for Banks and Markets?

Banks are not uniformly affected. For example, in the latest quarter HDFC Bank wrote off ₹3,200 crore while continuing its post‑merger integration and experienced some stock volatility. 

ICICI Bank saw slippages increase to over ₹5,300 crore but maintained conservative provisioning. Axis Bank recorded the highest slippages at ₹6,007 crore yet saw its share price rise significantly after results beat expectations.

These differences show that markets are parsing not just the headline figures, but the drivers behind them. Where lenders are taking controlled write‑offs while maintaining operational strength, investors seem more comfortable. Where write‑offs are accompanied by deteriorating performance, caution is increasing.

RBI’s tighter stance on growth in unsecured credit, including higher risk weights imposed on certain loan categories, is also nudging banks to be more selective in expanding their portfolios. 

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This is leading some lenders to prioritise secured lending or fee‑based income streams where risk‑reward profiles are more attractive.

Broader Context and Sector Health

It helps to look beyond write‑offs to see the sector’s overall position. Over the last decade, Indian banks have written off substantial sums to address problem loans, especially after major asset quality reviews earlier in the 2010s.