Indian banks in healthy state; asset quality improves with GNPAs declined to 2%: RBI

The Reserve Bank of India (RBI) has underscored the improvement in asset quality of Indian scheduled commercial banks and said that their gross non-performing assets (NPAs) ratio has declined further to 2% in December 2025. Gross NPAs represent the proportion of loans unpaid for over 90 days.

The Gross NPAs ratio of the banking system was at 2.5% during the year-ago period. RBI noted that the quality of assets has improved across sectors, including retail loans, services, industry, and agriculture. It said that the NPAs in retail loans eased to 1%, services to 1.7%, industry to 1.8%, and agriculture to 5.7% in December 2025. It added that NPAs have been improving for many quarters, reflecting sustained recoveries, upgrades, and write-offs.

Besides, RBI has indicated that the West Asia conflict and the supply chain disruptions are unlikely to pose any systemic concerns to the banks’ profitability and health. However, it flagged that there will be pockets and sectors that will be hit because of the conflict.

It said that robust credit growth has been recorded during H2FY26, owing to monetary policy easing and strong economic activity. Meanwhile, the central bank's report said the credit growth of scheduled commercial banks accelerated to 13.8% year-on-year as of March 15, 2026, from 11% a year ago. Across bank groups, credit growth of foreign banks remained the highest at 14.7% year-on-year, followed by public sector banks and private banks. It highlighted that the public sector banks accounted for the largest share of incremental credit year-on-year as on March 15, 2026.

Bank credit to grow by 13% in FY27

According to the latest report by Crisil, bank credit is likely to grow by around 13% in this fiscal (FY27), driven by healthy growth in the micro, small and medium enterprise (MSME) and retail sectors, as well as the continued preference of corporates for bank credit rather than issuance of bonds amid the prevailing interest rate differential. It said the corporate credit is expected to grow in the range of 9-10% in FY27, in line with FY26. The retail segment is expected to grow at 14%, and the MSME is expected to grow at 19% in FY27, the fastest among all.