The Reserve Bank of India has highlighted significant improvement in asset quality across Indian commercial banks, with gross non-performing assets (NPAs) ratio declining to 2% in December 2025. According to RBI reports, this represents a substantial improvement from the 2.5% GNPAs ratio recorded during the same period last year. The central bank attributed this sharp improvement to stringent controls and superior bankruptcy reforms implemented over recent quarters.
The improvement in asset quality has been broad-based across all banking sectors, as reported by RBI. Retail loans NPAs eased to 1%, while services sector NPAs stood at 1.7%, industry sector at 1.8%, and agriculture sector at 5.7% in December 2025. RBI noted that NPAs have been improving for many quarters, reflecting sustained recoveries, upgrades, and write-offs across the banking system.
Indian banks have demonstrated robust credit growth momentum during the second half of FY26, driven by monetary policy easing and strong economic activity. As reported by RBI, credit growth of scheduled commercial banks accelerated to 13.8% year-on-year as of March 15, 2026, compared to 11% a year ago. Foreign banks led credit growth at 14.7% year-on-year, followed by public sector and private banks, with public sector banks accounting for the largest share of incremental credit.
According to Crisil's latest report, bank credit is projected to grow by approximately 13% in FY27, supported by healthy growth in micro, small and medium enterprise (MSME) and retail sectors. The MSME segment is expected to lead growth at 19% in FY27, the fastest among all segments, while corporate credit is anticipated to grow in the range of 9-10%, in line with FY26 performance. This growth is expected to be driven by continued preference for bank credit over bond issuance amid prevailing interest rate differentials.
