RBI Projects Banks' Bad Loans to Edge Up to 1.9% by FY28

India’s banking sector is expected to remain financially resilient despite a marginal rise in bad loans, with the Reserve Bank of India’s (RBI) Financial Stability Report (FSR) projecting the Gross Non-Performing Asset (GNPA) ratio to increase from 1.8% at the end of March 2026 to 1.9% by March 2028 after years of improvement in asset quality. 

Indian Banking Sector Remains Resilient 

The RBI said banks continue to be supported by strong capital buffers, healthy profitability, improving asset quality and strengthening credit growth. It added that asset quality is currently at multi-decadal highs, reflecting sustained balance sheet improvement. 

Macro stress tests also showed that aggregate capital adequacy ratios would remain comfortably above the minimum regulatory requirement even under severe stress scenarios, indicating that banks are adequately capitalised to absorb macroeconomic and financial shocks. 

Credit Growth and Financial Position 

According to the report, Scheduled Commercial Banks (SCBs) further strengthened their financial position during FY26 with robust capital and liquidity buffers alongside stable profitability. 

While credit and deposit growth moderated during the first half of FY26, both regained momentum in the second half, supported by stronger lending activity and an improving funding environment. The RBI said stable earnings and declining bad loans continue to support the sector's financial health. 

NBFCs and Financial Institutions 

The report said Non-Banking Financial Companies (NBFCs) remain financially sound, supported by strong capitalisation, healthy profitability and improving asset quality, although some entities may face pressure under severe stress scenarios.  

Primary Urban Cooperative Banks also improved asset quality and maintained adequate capitalisation despite moderated profitability. Stress tests also confirmed the resilience of mutual funds, clearing corporations and the insurance sector. 

Emerging Cyber Risks 

The RBI said greater interconnectedness among financial institutions requires close monitoring and identified AI-enabled cyberattacks as the most significant near-term cybersecurity challenge as digital adoption accelerates. 

Read More: RBI Introduces Revised Customer Protection Framework for Digital Banking Fraud! 

Conclusion 

The RBI said India's financial system remains resilient, supported by strong bank and non-bank balance sheets, while continued vigilance will be required amid global uncertainties and emerging technology-related risks. 

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