Indian banks’ gross bad loan ratio to remain close to multi-decade lows, RBI report says

MUMBAI: Indian banks’ gross bad loan ratio will remain close to multi-decade lows if economic growth holds steady as projected, a report published by the central bank on Monday showed.

The Reserve Bank of India forecasts growth at 6.5% and 6.7% in fiscal 2026 and 2027.

The gross bad loan ratio of 46 banks was at 2.3% in March 2025 and is seen rising only marginally to 2.5% by March 2027, the RBI said in the Financial Stability Report.

The gross bad loan ratio is the proportion of bad assets of a lender to total loans.

The bad loan ratio could rise to 5.3% and 5.6% under two separate high-risk scenarios, the report said.

The Financial Stability Report, published twice a year by the central bank, includes contributions from all financial sector regulators.

Indian banks’ asset quality has improved over the last few years due to recoveries and write-offs of legacy bad loans, and curtailed growth of bad assets. Banks have also shored up their capital positions and improved their liquidity profile.

However, retail loan delinquencies have risen at Indian banks over the last few quarters, driven by growing stress in credit cards, personal loans, and microfinance segments.

Aggressive lending to riskier borrowers had led to a surge in missed repayments in these segments.