Indian economy resilient despite global shocks; NPAs to remain low: RBI report

The Indian economy and the financial system have demonstrated remarkable resilience despite facing external shocks of significant magnitude, but the central bank remains alert and will continue to take steps to enhance the "guardrails" that protect the economy and financial system from any shocks, Reserve Bank of India Over Sanjay Malhotra said on Tuesday.

The Financial Stability Report also noted that the banks' bad loan ratio was expected to remain below 2 per cent under its baseline scenario.

"Strong growth, low inflation, healthy balance sheets of financial and non­financial firms, and ample buffers have helped preserve macro-financial stability. Nevertheless, we remain alert to evolving external and domestic risks and are committed to further strengthening the guardrails that protect our economy and financial system from potential shocks," he said in the FSR.

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Malhotra warned that the risk of adverse external shocks has increased, with geopolitical conflicts and fragmentation emerging as key challenges for policymakers. In this environment, preserving financial stability, strengthening the financial system and building systemic resilience have become more important than ever, he stressed.

"India’s sound macroeconomic fundamentals provide ample buffers to deal with external shocks. However, the Indian economy remains exposed to energy price shocks and supply-chain disruptions given its high dependence on imported oil and other key commodities," the FSR noted.

NPAs decline

Over the last few years, banks have seen a considerable reduction in their non-performing assets. Gross NPAs of banks declined to 1.8 per cent as of March 31, 2026, compared with 2.3 per cent in March 2025 and 2.8 per cent in March 2024, the FSR noted.

The improvement in asset quality has been broad based across bank groups, it added.

The annual slippage ratio steadily moderated over the last four financial years to 1.2 per cent in 2025-26, driven by lower fresh accretions to impaired assets in public and private banks, according to the FSR.

RBI sees the gross NPA ratio of 46 banks at 1.9 per cent by March 2028. However, under adverse scenarios, it warned that the ratio could rise 3.8 per cent and 5.1 per cent, respectively.

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Sectoral credit risk of scheduled commercial banks (SCB) was assessed under two hypothetical stress scenarios - one standard deviation and two standard deviation increase in gross NPA ratios of the respective sectors as of March 2026.

"The results of stress tests indicate only a marginal impact of such shocks on the aggregate capital of SCBs, underscoring the resilience of the banking system to sector-specific credit risk," according to the FSR.

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