The Reserve Bank of India released its Financial Stability Report on Tuesday, outlining central projections and stress-test results for the banking system's asset quality through March 2028.
Baseline Outlook
Under the report's baseline scenario - which applies the latest forecasts for macroeconomic variables - the banking sector's gross bad loan ratio is expected to remain below the 2% threshold over the next three years. At the end of March 2026 the ratio stood at 1.8%, and the RBI's projection places it slightly higher at 1.9% by the end of March 2028. A level below 2% is identified in the report as healthy for the sector.
Stress Scenarios
The RBI also modelled severe stress conditions. These scenarios, which assume a sharp slowdown in economic growth together with higher inflation, indicate that gross non-performing assets could climb to between 3.8% and 4.1% by March 2028. The central bank said the stress-test outcomes confirmed banks' capacity to absorb losses in such adverse situations.
Financial Sector Soundness
Beyond banks, the report assessed other parts of the financial system. Non-banks, asset management companies, clearing corporations and insurance companies were all described as remaining sound in the RBI's analysis.
Governor's Assessment
In the foreword to the report, Governor Sanjay Malhotra wrote that "the Indian economy and the financial system have demonstrated remarkable resilience despite facing external shocks of significant magnitude."
Credit Growth
The report noted an acceleration in bank credit growth, which rose to 14.5% in fiscal 2026 from 11% in the previous year. Within that expansion, state-owned lenders continued to outpace private-sector banks.
The Financial Stability Report combines baseline projections tied to current macro forecasts with downside stress scenarios to map potential asset-quality paths for the banking sector through March 2028.