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Indian bank NPAs fall to 2.1%, a twelve-year low; credit crosses ₹200 lakh crore

The RBI's December 2025 Financial Stability Report marks a clean bill of health, with SBI, ICICI and HDFC posting record profits; stress is now concentrated in microfinance and unsecured MSME lending

Money· active Whose Money·What They're Not Saying ·9 takes · ·rbtfl upd Jun 27, 2026

Summary

India's banking sector entered 2026 at the strongest asset-quality position in over a decade. The Reserve Bank of India's December 2025 Financial Stability Report (FSR) placed the banking system's Gross NPA ratio at 2.1% as of September 2025, down from a peak of 11.18% in 2018 and 9.11% for public banks at the pandemic trough in March 2021. Net NPA stood at 0.52% as of March 2025. Capital adequacy ratios remain comfortable: public banks 16%, private banks 18.1%. Total bank credit crossed ₹200 lakh crore for the first time in January 2026. State Bank of India posted FY26 net profit of ₹80,032 crore (+12.88%), with gross advances of ₹49.32 trillion (+16.87%). ICICI Bank reported PAT of ₹50,147 crore (+6.2%) and a gross NPA of 1.40%. HDFC Bank advances grew 10%. The FSR identified residual risks in fintech lending (36.1% portfolio growth with elevated unsecured exposure) and in wholesale MSME and vehicle-finance segments within NBFCs (see India's microfinance sector under stress: long-term delinquencies double, government launches ₹20,000 crore guarantee scheme). Public sector bank earnings surged 26% in FY25, with loan growth outpacing private banks for the first time in over a decade. Credit-to-GDP at 93% is within normal historical range. The RBI's 100bp cumulative rate cuts in FY25-26 have begun reducing borrowing costs, supporting credit expansion.

The split

The government and RBI frame the NPA trough as a structural achievement: the Insolvency and Bankruptcy Code and sustained balance-sheet repair. Rating-agency analysis from CRISIL is more cautious, projecting NPA at 2.3-2.5% by March 2026, implying a slight uptick as the fintech-lending and unsecured retail cycle matures. The FSR's own risk identification of fintech portfolio growth at 36.1% and the "impairment risk among borrowers with loans from 5+ lenders" is buried in a section that most Indian business coverage ignored.

By the numbers

  • 2.1%, banking system Gross NPA (September 2025, RBI FSR); down from 11.18% peak (2018)
  • 0.52%, Net NPA (March 2025)
  • 16% / 18.1%, CRAR for public / private banks
  • ₹200 lakh crore, bank credit total (crossed January 2026 for the first time)
  • ₹80,032cr, SBI FY26 net profit (+12.88%)
  • ₹50,147cr, ICICI Bank FY26 PAT (+6.2%)
  • 16.87%, SBI gross advance growth FY26
  • 36.1%, fintech lending portfolio growth flagged by RBI as impairment risk

Why it matters

Clean bank balance sheets give the RBI room to transmit rate cuts into the real economy without credit-quality concerns. The 100bp cut cycle and the NPA trough together create the most favourable credit environment in a decade for India's infrastructure and manufacturing push. The risk is complacency: several sub-cycles, unsecured retail, fintech overleveraged borrowers, MSME stress, are still building, and the FSR's own language flags them.

What to watch

  • June 2026 FSR: whether NPA has inched back up to the 2.3-2.5% CRISIL projection by March 2026
  • Fintech lender delinquencies: the 36.1% portfolio growth cohort begins ageing in 2026-27
  • Retail unsecured write-offs: early stress in personal loans, credit cards flagged by HDFC and ICICI
  • Public sector banks maintaining profitability if credit costs rise from trough