<p>The Reserve Bank of India (RBI)’s financial stability report paints a healthy picture of the country’s banking sector with stronger balance sheets and better asset quality. </p><p>The gross non-performing assets (NPAs) as a share of total advances stood at 2.1% of all advances in September 2025, as against 11.2% in 2017-18. Net NPAs declined from about 3% to 0.5% during this period. </p><p>The last decade saw major detoxification of banking assets, after the RBI enforced an asset quality review on the banks. While an earnest drive for recovery of bad loans helped, a big part of the loans had to be written off, necessitating capital infusion into banks from the public exchequer. The apex bank expects strong capital and liquidity buffers, improved asset quality, and higher profitability to prepare banks for future adversities.</p>.<p>While underlining stability in the sector, the report takes note of increasing competition from non-banking sources in credit delivery. Loan growth has outpaced deposit growth, pushing up the credit-deposit ratio. NPAs are seen to be higher in the priority sectors than in other areas. While such lending should continue, there is a need for more scrutiny and greater efforts to ensure that loans do not go bad. </p><p>The report has also expressed concern over some issues related to retail lending. More than half of all retail loan slippages are tied to unsecured products such as personal loans and credit cards. This calls for greater vigil, as such loans are increasing. They accounted for nearly 76% of slippages for private banks, compared with 15.9% for public sector banks. Deposit mobilisation may face challenges, as it is seen that nearly half the financial flows to the commercial sector are coming from non-banking sources. As the capital market offers better returns and there is a trend of savings moving in that direction, banks need to offer matching returns to attract deposits.</p>.<p>The report has noted areas where the banks have performed strongly, but has also indicated vulnerabilities that call for policy resolve and preparedness. Since the sector is critical to the economy, any shocks – triggered by internal or external factors – will leave a significant impact. While the country’s economy is stable, it cannot be seen as isolated from the turbulence in the global economy, caused by geopolitical tensions and other reasons. </p><p>There are no guarantees of immunity from such shocks. But it is prudent, and possible, to adopt the best internal safeguards. The report shows that the regulator is aware of the risks and the need to prepare for them.</p>
<p>The Reserve Bank of India (RBI)’s financial stability report paints a healthy picture of the country’s banking sector with stronger balance sheets and better asset quality. </p><p>The gross non-performing assets (NPAs) as a share of total advances stood at 2.1% of all advances in September 2025, as against 11.2% in 2017-18. Net NPAs declined from about 3% to 0.5% during this period. </p><p>The last decade saw major detoxification of banking assets, after the RBI enforced an asset quality review on the banks. While an earnest drive for recovery of bad loans helped, a big part of the loans had to be written off, necessitating capital infusion into banks from the public exchequer. The apex bank expects strong capital and liquidity buffers, improved asset quality, and higher profitability to prepare banks for future adversities.</p>.<p>While underlining stability in the sector, the report takes note of increasing competition from non-banking sources in credit delivery. Loan growth has outpaced deposit growth, pushing up the credit-deposit ratio. NPAs are seen to be higher in the priority sectors than in other areas. While such lending should continue, there is a need for more scrutiny and greater efforts to ensure that loans do not go bad. </p><p>The report has also expressed concern over some issues related to retail lending. More than half of all retail loan slippages are tied to unsecured products such as personal loans and credit cards. This calls for greater vigil, as such loans are increasing. They accounted for nearly 76% of slippages for private banks, compared with 15.9% for public sector banks. Deposit mobilisation may face challenges, as it is seen that nearly half the financial flows to the commercial sector are coming from non-banking sources. As the capital market offers better returns and there is a trend of savings moving in that direction, banks need to offer matching returns to attract deposits.</p>.<p>The report has noted areas where the banks have performed strongly, but has also indicated vulnerabilities that call for policy resolve and preparedness. Since the sector is critical to the economy, any shocks – triggered by internal or external factors – will leave a significant impact. While the country’s economy is stable, it cannot be seen as isolated from the turbulence in the global economy, caused by geopolitical tensions and other reasons. </p><p>There are no guarantees of immunity from such shocks. But it is prudent, and possible, to adopt the best internal safeguards. The report shows that the regulator is aware of the risks and the need to prepare for them.</p>
