Will NPAs of banks rise to 12-year lows in 2026?

Bank NPA Low in 12 Years: The report said that 'the credit risk under adverse scenario 2 is comparatively serious. The gross NPA ratio of public sector banks may increase from 3.3% in September 2024 to 7.3% in March 2026.

Bank NPA: The efforts of the government and banks are constantly paying off. As a result, the gross NPAs of banks came down to a 12-year low of 2.6 per cent in September 2024. But, an analysis by the Reserve Bank of India (RBI) has revealed that it may again increase to 3% by March 2026. The RBI has expressed concern about this, if bad loans increase rapidly in private banks, it means that the condition of banks is getting worse.

What will happen if the economic situation worsens?

The twice-yearly Financial Stability Report said that if the economic situation worsens, banks' bad loans could increase by up to 5%. If the situation worsens, then the bad loan can increase to 5.3%. "The credit risk under adverse scenario 2 is comparatively severe. The gross NPA ratio of public sector banks may increase from 3.3% in September 2024 to 7.3% in March 2026, while in private banks it may increase from 1.9% to 2.9%. It may also increase from 0.9% to 1.4% for foreign banks.

Four banks may

breach minimum capital requirement The stress test result revealed that the Capital Tilted Weighted Assets Ratio (CRAR) of 46 major scheduled commercial banks may decline from 16.6% in September 2024 to 16.5% by March 2026 and 15.7% under Adverse Scenario 2. In this situation, the minimum capital requirement of any bank is not expected to fall below 9%. However, under adverse scenario 1, the overall CRAR of banks may come down to 14.3%. In this, four banks can breach the minimum capital requirement.

This happened

due to the demand for stable loans, the RBI said that this has happened due to the lack of default in repayment and the demand for stable loans. The RBI also expressed concern over the rapid increase in loan write-offs. This is especially being seen among private sector banks (PVBs). This can hide the deteriorating asset quality in unsecured loans. As per the December, 2024 issue of the RBI's Financial Stability Report (FSR), the net NPA ratio stood at 0.6 per cent.

The report said, "The GNPA ratio of 37 commercial banks (SCBs) fell to a low level of 2.6 percent due to lack of loan defaults, increase in write-offs and stable loan demand. According to the report, retail loan portfolio was part of the default of unsafe loans. The report has also highlighted weaknesses in the Indian financial system. This includes overvaluation in the stock market, tension in the microfinance and customer loan sector, and risk from external influences.

As of September 2024, new NPAs in the retail loan portfolio were driven mainly by defaults in unsecured loans, accounting for 51.9% of the new NPAs. Small financial banks in the Bank Group are facing higher losses in their retail loan portfolio, with a GNPA ratio of 2.7%, SMA (1+2) ratio of 3.6% and an unsecured GNPA ratio of 4.7%.