Fitch Ratings has indicated that Indian banks are in a relatively strong position to handle global uncertainties, bolstered by improved asset quality and robust credit profiles. However, the report warns of potential margin pressures, estimating a compression of 20–30 basis points by FY27, which could lead to a decline in operating profits by 30–40 basis points. The liquidity surplus has already dropped to about 0.5% of deposits, indicating tighter funding conditions. The report highlights that while Indian banks are better positioned than many regional peers, they could still face challenges from rising energy prices and weakening external demand. The broader South and Southeast Asian banking sectors may experience credit risks due to prolonged conflicts in the Middle East, impacting borrower repayment capacities, especially in vulnerable sectors like retail and small and medium enterprises (SMEs). Despite these challenges, strong domestic funding and government support are expected to help maintain overall credit stability.