Indian Banks’ Decade-Best Health: Low NPAs, Strong Buffers

Indian banks have reached their strongest financial position in a decade, according to an assessment by Motilal Oswal Financial Services Ltd. This robust health is marked by non-performing assets (NPAs) nearing historic lows and significantly fortified balance sheets.

The firm’s analysis highlights a substantial improvement across the banking sector, driven by cleaner balance sheets and stronger fundamental indicators.

Key Financial Metrics

• Gross NPAs for scheduled commercial banks declined to approximately 1.8% in March 2026.
• Net NPAs stood at about 0.4% during the same period.
• Capital adequacy levels have remained comfortable, further bolstering the sector.

This positive trend reflects the banking sector’s resilience and recovery after a prolonged period focused on resolving stressed assets and balance sheet repair. Improved asset quality now complements enhanced profitability and sufficient capital.

RBI’s Aligned Assessment

These observations align with evaluations from the Reserve Bank of India (RBI), which indicate that banks possess strong capital buffers and can withstand severe stress scenarios. The central bank views the system as resilient.

Stronger bank balance sheets are expected to positively influence the broader credit cycle. This enables expanded lending while ensuring prudent underwriting standards are maintained.

Credit Growth Resurgence

• Credit growth accelerated to 14.5% year-on-year during 2025-26.
• Deposit growth reached 11.5% in the same fiscal year.

This marks a significant turnaround from the previous decade, when high corporate leverage and rising bad loans impacted bank profitability and restricted credit expansion. The firm anticipates the banking sector will continue to benefit from an improving credit cycle.

This cycle is driven by healthier corporate balance sheets and sustained economic activity, which together will bolster demand for loans across the economy.