Bank NPAs fall further in March; may rise under baseline scenario: RBI

RBI's Financial Stability Report shows bank NPAs fell to record lows in March, though stress tests indicate a modest rise under the baseline scenario by March 2028

Gross and net non-performing assets (GNPAs and NNPAs) of scheduled commercial banks (SCBs) fell further by the end of March to 1.8 per cent and 0.4 per cent, respectively, according to the Reserve Bank of India’s Financial Stability Report released on Tuesday.

 

The improvement in asset quality was broad-based across bank groups.

 

While credit quality improved across all broad economic sectors, the report highlighted that agriculture continued to exhibit the highest GNPA ratio of 5.1 per cent and accounted for the largest share of SCBs’ GNPA at 37.2 per cent in March this year.

 

However, the stress test showed that under the baseline scenario, the aggregate GNPA ratio of 46 banks may edge up from 1.8 per cent in March this year to 1.9 per cent by March 2028. Under adverse scenarios 1 and 2, it may rise to 3.8 per cent and 4.1 per cent, respectively.

 

 

Adverse scenario 1 assumes further intensification of geopolitical risks, elevated energy prices and exchange rate pressures, leading to a rise in domestic inflation and a slowdown in growth during 2026-27, followed by a gradual improvement in the situation during 2027-28. Adverse scenario 2 assumes prolonged and more widespread geopolitical conflicts extending to 2027-28, leading to disruptions in domestic inflation and growth in both years.

 

The aggregate common equity tier 1 (CET1) capital ratio of the select 46 banks may decline from 15.2 per cent in March 2026 to 13.9 per cent by March 2028 under the baseline scenario, the report said.

 

SCBs’ capital adequacy ratio and CET1 ratio stood at 17.7 per cent and 15.3 per cent, respectively, at the end of March 2026, data showed.

 

Both public-sector and private-sector banks reported higher capital adequacy ratios (CAR) in March 2026. The increase in CAR in March this year can be credited to higher growth in capital relative to the growth in risk-weighted assets (RWA) during this period, the report said.

 

The report observed that beneath the aggregate expansion in credit, the growth in credit RWA was lower than overall credit growth during 2025-26 for the first time in three years. “This indicates a broad-based shift towards lower risk-weighted credit exposures and an improving risk profile of incremental lending,” the report said.

 

The provisioning coverage ratio of SCBs remained broadly stable at 75.6 per cent.