Indian banks’ combined gross non-performing assets (NPAs) is expected to inch up to 1.9% in the baseline scenario but will be under this 2% for three years, according to the Reserve Bank of India’s Financial Stability Report.

The bank’s gross NPA ratio stood at a multi-decadal low of 1.8% as of March 2026.

Banks have to face the challenges of a global economy exposed to supply disruptions and threat of a surge in oil prices due to the US-Israel war with Iran, but have developed resilience buffers.

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

"The aggregate  gross NPA ratio of 46 banks may edge up from 1.8% in March 2026 to 1.9% by March 2028 under the baseline scenario," the report, released today, said.

Under severe stress scenarios, which assume a marked slowdown in growth and higher inflation, gross NPAs could rise to 3.8% to 4.1% by March 2028, the RBI said.

Banks and non-banking financial institutions remain sound, supported by strong capital and liquidity positions, healthy profitability, low levels of NPAs and robust credit growth. Stress tests indicate that the financial institutions are well-positioned to withstand adverse shocks,” he added.

Credit grew at a brisk pace of 14.5% in FY26 from 11% a year earlier. State-owned banks exhibited stronger growth momentum compared to their private sector peers.

The profitability of banks was fueled by "sustained credit expansion, stable interest margins and robust growth in other operating income," the report said.