Indian banks' bad loans to remain below 2% through 2028, RBI report says

MUMBAI: Indian banks’ combined gross bad loan ratio is projected to stay under 2% for three years under a so-called baseline scenario as lenders have stayed resilient in a challenging global setup, the central bank’s Financial Stability Report said on Tuesday.

Gross bad loan ratio is the proportion of non-performing or bad assets to total loans, with figures under 2% considered a healthy ratio.

Gross NPA stood at 1.8% at end-March 2026 and could inch up to 1.9% by end-March 2028, the report said.

The baseline scenario is derived from the latest forecasts for macroeconomic variables, according to the Reserve Bank of India. Under severe stress scenarios, which assume a marked slowdown in growth and higher inflation, the gross NPAs could rise to 3.8%-4.1% by March 2028, the report said.

The Indian economy and the financial system have demonstrated remarkable resilience despite facing external shocks of significant magnitude, Governor Sanjay Malhotra wrote in the foreword of the report.

“Stress test results reaffirmed the resilience of these institutions to withstand losses under adverse scenarios,” the RBI said in the report.

Other segments of the financial sector including non-banks, asset management companies, clearing corporations, and insurance companies also remained sound, the report said.

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Credit growth for Indian banks accelerated to 14.5% in fiscal 2026 from 11% a year earlier, with state-owned lenders continuing to outpace their private sector peers.

The profitability of Indian banks also remained strong and was helped by “sustained credit expansion, stable interest margins and robust growth in other operating income,” the report said.

Looming cyber risks

The central bank’s report noted that cybersecurity risks have become a key financial stability concern.

An RBI survey of major Indian banks and non-bank lenders found AI-enabled cyber threats were the leading perceived risk over the next 12 months.

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While financial institutions have established robust practices in key areas of cyber risk management, “cybersecurity awareness and training for employees remain areas which require further strengthening,” the report said.

“India remains exposed to these risks, with a relatively high volume of cyberattacks compared to other emerging market economies,” according to the report.