RBI: Indian Banks Strong, NPAs at Lows, Capital Buffers at Peak

The Reserve Bank of India, in its Financial Stability Report released on Monday, stated that the country's banking system remains strong, with capital buffers at record highs, non-performing loan ratios at multi-decade lows, and a marked improvement in operational performance.

“Macro stress tests reaffirm the resilience of banks even under adverse scenarios. The NBFC sector has also strengthened, supported by improved asset quality and robust capital buffers. Meanwhile, interconnectedness among financial sector entities, as seen in their bilateral exposures, continued to register double-digit growth,” the RBI noted in its report.

The Reserve Bank has projected India’s economic growth at 6.5% and 6.7% for the current fiscal.

The gross non-performing asset (NPA) ratio of 46 banks stood at 2.3% as of March 2025 and is expected to rise only slightly to 2.5% by March 2027, according to the RBI’s Financial Stability Report. The report also highlighted that the capital-to-risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) reached a record high of 17.3% in March 2025.

The gross bad loan ratio represents the share of a lender’s non-performing assets (NPAs) in relation to its total loan portfolio.

It is worth noting that bad assets were among the most pressing challenges for India’s banking sector through much of the latter half of the previous decade. However, in recent years, the system has shown significant improvement in key financial indicators. Asset quality has strengthened, driven by recoveries, write-offs of legacy bad loans, and a slowdown in the accumulation of new non-performing assets. Additionally, banks have bolstered their capital positions and enhanced their liquidity profiles.

However, retail loan delinquencies at Indian banks have increased in recent quarters, primarily due to mounting stress in credit card debt, personal loans, and the microfinance sector.

Aggressive lending to higher-risk borrowers has resulted in a spike in missed repayments across these segments.

RBI Governor Sanjay Malhotra on Monday emphasised that financial stability, much like price stability, is essential for sustaining economic growth. He also cautioned that structural changes in the global economy are making policy interventions increasingly complex.

In the foreword to the June edition of the Financial Stability Report (FSR), RBI Governor Sanjay Malhotra said financial sector regulators are committed to safeguarding consumers, encouraging competition, and fostering innovation, while maintaining a careful balance between efficiency, growth, and the overall safety and soundness of the financial system.

He noted that several structural shifts are currently reshaping the global economy, including increasing trade fragmentation, rapid technological disruptions, the ongoing impact of climate change, and prolonged geopolitical tensions.

“These developments make economic forecasting more difficult and policy interventions more complex,” Malhotra said. “In such uncertain times, it is crucial for central banks and financial sector regulators to stay vigilant, prudent, and adaptable in protecting their economies and financial systems.”

He further stressed that while financial stability is essential, just like price stability, it alone is not sufficient to unlock India’s full growth potential.

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