Mumbai: In a promising sign for India’s financial system, the Reserve Bank of India (RBI) has reported that the country's banks are likely to maintain gross non-performing asset (GNPA) ratios at historically low levels in the near future. This forecast was made in the central bank’s June 2025 Financial Stability Report (FSR), which presents a semiannual health check of India’s banking and financial institutions.
As of March 2025, the aggregate GNPA ratio for Indian banks stood at 2.3%, marking one of the lowest levels in over two decades. This represents a sustained trend of recovery and cleanup in the sector, following a decade of high NPAs triggered by corporate loan defaults in the mid-2010s.
According to the RBI’s stress test simulations, this ratio is expected to remain stable and could increase only marginally to 2.5% by March 2027, provided the economy continues to grow at a moderate pace of around 6.5–6.7%.
While the overall outlook remains stable, the central bank has raised red flags over rising default rates in retail segments, especially in unsecured lending areas such as:
• Credit cards
• Personal loans
• Microfinance loans
This growing trend of defaults, particularly among low-income borrowers, is being closely monitored. The report warns that aggressive expansion in unsecured lending without proper credit assessments could expose banks to credit quality deterioration, especially if household incomes are strained by inflation or job losses.
The RBI also highlighted the sector’s resilient capital position, with banks maintaining a Capital to Risk Weighted Assets Ratio (CRAR) of 17.2% as of March 2025. This is well above the regulatory minimum of 9%, offering a healthy buffer against any potential shocks. The CRAR is expected to remain close to 17% through March 2027, even under moderate stress conditions.
In the event of a severe macroeconomic shock, such as a global financial downturn or major domestic slowdown, the RBI’s worst-case scenario projects that the GNPA ratio could climb as high as 5.3%–5.6% by 2027. This underscores the importance of macroeconomic stability and risk management practices.
The report adds that public sector banks, once plagued by asset quality issues, have made significant strides. Private sector and foreign banks continue to exhibit relatively stronger asset quality, although their retail-heavy loan portfolios could face headwinds if delinquencies persist.
India’s household debt has risen to 41.9% of GDP, up from 39.5% in 2023, with non-housing retail loans now accounting for more than half of this figure. While this remains below the global average and is not yet a systemic risk, the RBI cautions that a disproportionate rise in high-risk lending could change that equation if left unchecked.
The RBI’s Financial Stability Report paints a mostly optimistic picture of India’s banking landscape. The low levels of NPAs, coupled with strong capital adequacy and improved risk management, reflect a sector in good health. However, the central bank emphasized the need for continued vigilance especially in monitoring:
• The quality of retail lending,
• Credit concentration in vulnerable segments,
• And the impact of external shocks like oil prices or geopolitical tensions.
The overarching message is clear: while the system is stable and resilient, proactive governance, tighter supervision, and responsible lending are essential to maintain momentum and prevent future crises.