MUMBAI: India’s banking sector has shown spectacular improvement in asset quality as gross non-performing assets (NPAs or bad loans) touched a decadal low of 2.3% in March 2025, the Reserve Bank of India said in its Financial Stability Report, released on Monday. However, the report forecasts a marginal 20 basis-point rise in gross NPAs by March 2027 to 2.5% in a normal scenario and 5.6% in an extreme adverse scenario.
“The soundness and resilience of commercial banks are bolstered by robust capital buffers, multi-decadal low non-performing loans ratio and strong earnings,” it said.
The report, based on the aggregate gross NPAs of 46 banks, also considered geopolitical risks and adverse scenario of global growth slowdown for its projections.
The forecasts were based on the results of various ‘stress tests’ to assess the resilience of the banking system to macroeconomic shocks. According to the report, the stress tests affirmed that most banks have adequate capital buffers relative to the regulatory minimum, even under adverse stress scenarios.
Stress tests also validated the resilience of mutual funds and clearing corporations. Similarly, non-banking financial companies were found to remain healthy with sizable capital buffers, robust earnings and improving asset quality.