The Indian banking system is showing signs of robust health, with gross non-performing assets (NPAs) dropping to a multi-decadal low of 2.3% in March 2025, according to the latest RBI report. This marks an improvement from the 2.6% recorded in September 2024, showcasing steady progress in asset quality over recent years. The Reserve Bank of India released the findings in its half-yearly Financial Stability Report, highlighting both achievements and lingering risks.
NPAs, or bad loans, have long been a thorn in the side of Indian banks, particularly during the last decade. However, consistent efforts to clean up balance sheets and stringent monitoring have paid off. The RBI, while optimistic, also flagged potential challenges ahead. It projected that GNPAs could inch up to 2.6% by March 2027, urging banks to stay vigilant.
Governor Sanjay Malhotra acknowledged the progress but warned of external risks. “Nonetheless, external spillovers and weather-related events could pose downside risks to growth,” he said. On the brighter side, inflation seems under control, with confidence growing around its alignment with the RBI’s targets.
Global financial markets remain unpredictable, influenced by shifting policies and geopolitical tensions. The report pointed to soaring public debt and high asset valuations as factors that could amplify economic shocks. Yet, India’s domestic financial system stands strong, backed by healthy balance sheets across banks and non-banking financial companies.
“Financial stability, like price stability, is a necessary condition, and not a sufficient one to boost India’s potential growth,” Malhotra emphasized. He stressed the need for a well-functioning financial system that efficiently supports macroeconomic stability while delivering essential services.
Accommodative monetary policies and minimal market volatility have eased financial conditions, further stabilizing the economy. The RBI report also noted that scheduled commercial banks are in good shape, with strong capital buffers, historically low NPA ratios, and solid earnings. Corporate balance sheets are equally resilient, adding another layer of support to the broader financial ecosystem.
The decline in NPAs is a testament to the banking sector’s recovery and regulatory efforts. Yet, the road ahead requires caution. With global uncertainties lingering, the RBI’s role in safeguarding financial stability remains crucial.