MUMBAI (Reuters) -Indian banks’ gross bad loan ratio will remain close to multi-decade lows if economic growth holds steady as projected, a report published by the central bank on Monday showed.
The Reserve Bank of India forecasts growth at 6.5% and 6.7% in fiscal 2026 and 2027.
The gross bad loan ratio – the proportion of bad assets of a lender to total loans – of 46 banks was at 2.3% in March 2025 and is seen rising marginally to 2.5% by March 2027, the RBI said in its Financial Stability Report.
The bad loan ratio could rise to 5.3% and 5.6% under two separate high-risk scenarios, where growth is much below the forecasts, the report said.
The Financial Stability Report is published twice a year and includes contributions from all financial sector regulators.
Indian banks’ asset quality has improved over the last few years due to recoveries and write-offs of legacy bad loans and curtailed growth of bad assets.
Banks have also shored up their capital positions and improved their liquidity profile.
The capital adequacy ratio of the 46 banks was at a record high of 17.2% as of March 2025 and is seen falling to 17% by March 2027 under the RBI’s baseline growth scenario, the report said.
However, retail loan delinquencies have risen over the last few quarters, driven by growing stress in credit cards, personal loans, and microfinance segments.
Aggressive lending to riskier borrowers had led to a surge in missed repayments in these segments.
Delinquency levels, except in credit cards, have decreased, the report said.
HOUSEHOLD DEBT
While the debt of Indian households has been increasing in recent years, the RBI report said it remains below levels seen in other emerging markets.
India’s household debt was at 41.9% of GDP as of December 2024, lower than the 46.6% of GDP across emerging economies.
Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9% of total household debt as of March 2025.
They formed 25.7% of disposable income as of March 2024, based on the most recent data available.
“The share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the report said.
It added that risks to the economy from household debt “remain contained” with recent rate cuts likely to reduce pressure on borrowers.
“However, the trend in household debt accumulation, especially among lower-rated borrowers, requires close monitoring,” it added.
(Reporting by Siddhi Nayak and Ira Dugal in Mumbai; Editing by Eileen Soreng)
