The Reserve Bank of India (RBI) has projected further improvement in the banking sector’s asset quality, forecasting that the aggregate gross non-performing assets (GNPA) ratio of 46 major scheduled commercial banks will decline to 1.9 per cent by March 2027 under a baseline scenario. The central bank set out the findings in its half-yearly Financial Stability Report released on Wednesday.
As of September 2025, the GNPA ratio stood at a multi-decade low of 2.1 per cent. The RBI’s stress tests show a range of outcomes: under two adverse scenarios the GNPA ratio could rise to 3.2 per cent and 4.2 per cent respectively, reflecting potential shocks such as slowed growth and global headwinds.
India GNPA ratio outlook to March 2027
The report highlights that capital buffers across the system remain healthy. The aggregate capital to risk-weighted assets ratio (CRAR) for the 46 banks was 17.1 per cent in September 2025. Under the baseline projection this would ease slightly to 16.8 per cent by March 2027. In the adverse scenarios the CRAR could decline to 14.5 per cent and 14.1 per cent.
State-owned banks reported a CRAR of 16.0 per cent while private sector banks recorded 18.1 per cent as of September. The RBI’s stress testing showed relatively higher depletion in the capital of public sector banks compared with private and foreign banks. The central bank also warned that six banks, which together account for roughly 15 per cent of the sector’s total assets, would breach the regulatory minimum CRAR under a severe shock.
On borrower concentration, the study found a constructive shift. The share of large borrowers in total credit of scheduled commercial banks remained roughly steady at around 44 per cent, but their share of gross NPAs has fallen markedly to 33.8 per cent as of September 2025. The decline in large-borrower contribution to NPAs is a positive signal for the distribution of credit risk.
From an earnings perspective the RBI noted moderation. Growth in core net interest income slowed to 2.3 per cent in September 2025 across bank groups, influenced by the central bank’s prior policy rate cuts. Net interest margins recorded a broad-based fall of 0.20 percentage points in September 2025 compared with March 2025, reflecting a relatively larger decline in yield on assets than in cost of funds.
Taken together, the RBI concluded that while the baseline path points to improved asset quality and resilient capital buffers, vulnerabilities remain. The stress-test results underline that economic shocks could reverse parts of the improvement, particularly for public sector banks with weaker capital cushions.
Analysts said the findings should encourage continued focus on provisioning discipline, loan monitoring and strengthening of capital positions where needed. For now, the headline message from the Financial Stability Report is that India’s banking system is on firmer footing than in previous years, but vigilance will be required to guard against external shocks.
Key Takeaways:
- RBI projects the aggregate India GNPA ratio to improve from 2.1 per cent in Sept 2025 to 1.9 per cent by March 2027 under a baseline scenario.
- Under adverse stress-test scenarios the GNPA may rise to 3.2 per cent and 4.2 per cent, with public sector banks showing larger capital depletion.
- Aggregate CRAR remains robust at 17.1 per cent in Sept 2025, falling modestly to 16.8 per cent under the baseline projection.
- Top-borrower concentration in gross NPAs has fallen to 33.8 per cent, while net interest margins and core NII saw moderation in Sept 2025.
