Banks’ Gross NPAs Expected to Decline Further by March 2027: RBI

The Reserve Bank of India has projected a further improvement in asset quality across the banking system over the next two years. 

According to its latest Financial Stability Report, banks’ gross non-performing assets (GNPA) ratio is expected to decline under the baseline scenario by March 2027. 

The assessment is based on stress tests covering major scheduled commercial banks.

RBI’s GNPA Outlook

The RBI stated that the aggregate GNPA ratio of 46 banks could improve from 2.1% in September 2025 to 1.9% by March 2027 under the baseline scenario. The central bank noted that asset quality had already reached a multi-decade low by September 2025.

Stress Test Results Under Adverse Scenarios

Under adverse conditions, including economic slowdown and global headwinds, the GNPA ratio could rise. The RBI’s stress tests indicate that the ratio may increase to 3.2% under a medium stress scenario and to 4.2% under a more severe scenario.

Capital Adequacy Position

From a capital perspective, banks continue to maintain comfortable buffers. As of September 2025, the capital to risk-weighted assets ratio stood at 16% for public sector banks and 18.1% for private sector banks. These levels are expected to support banks’ ability to absorb potential shocks.

Capital Impact Under Stress Conditions

The aggregate CRAR of 46 scheduled commercial banks may decline marginally from 17.1% in September 2025 to 16.8% by March 2027 under the baseline scenario. 

Under adverse scenarios, the ratio could fall further to 14.5% and 14.1%, according to the report.

Variation Across Bank Groups

The RBI observed that public sector banks could face relatively higher capital depletion compared with private and foreign banks during stress situations. 

The report also indicated that a small number of banks could breach the regulatory minimum CRAR under a severe shock scenario.

Trends in Large Borrower Exposure

The study highlighted a reduction in concentration risk. While large borrowers continued to account for around 44% of total credit, their share in gross NPAs declined to 33.8% as of September 2025, indicating improved credit quality among larger exposures.

Earnings and Margin Trends

On the earnings front, growth in core net interest income slowed to 2.3% in September 2025, influenced by recent policy rate cuts. Net interest margins declined by about 0.20% between March and September 2025, reflecting a sharper fall in asset yields than funding costs.

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Conclusion

The RBI’s latest assessment points to continued improvement in banks’ asset quality under normal economic conditions, supported by adequate capital buffers. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.