Not a single bank that fails to meet capital requirements even under severe stress: RBI FSR

While banks’ asset quality has remained stable, their YoY growth in net interest income has remained muted over the first half of 2025-26, impacting earnings growth | Photo credit: iStockphoto

“The results showed that the aggregate CRAR (capital adequacy ratio) of 46 large SCBs (banks) in the base case could fall from 17.1 percent in September 2025 to 16.8 percent in March 2027. This could fall to 14.5 percent and 14.1 percent in the hypothetical adverse scenarios 1 and 2 respectively. However, none of the banks would fall below the minimum CRAR requirement of 9 percent even under the adverse scenarios,” the RBI said in its latest Financial Stability Report (FSR).

Two banks may have to dip into their capital conservation buffer (CCB) in adverse scenario 1, while four banks may have to dip into the CCB in adverse scenario 2, if stakeholders do not inject further capital into these banks.

Adverse scenario 1 assumes that a phased slowdown in global growth would lead to a gradual decline in domestic GDP growth and a moderate increase in domestic inflation over time, and that the RBI would have limited policy space to cut the policy rate. Unfavorable Scenario 2 assumed that uncertainties in global trade would result in a sharp dent in domestic GDP growth, inflation would rise above 6 percent and the RBI would raise the repo rate.

Asset quality

The total gross non-performing assets (GNPA) ratio of the 46 banks may improve from 2.1 percent in September 2025 to 1.9 percent in March 2027 under the base case, as per FSR, and may rise to 3.2 percent and 4.2 percent, under adverse scenarios 1 and 2, respectively.

The RBI said that public sector banks (PSBs) and foreign banks led the continued improvement in asset quality and that banks’ GNPA ratio fell to a new multi-decadal low of 2.2 per cent at the end of September, and their net NPA ratio remained at a record low 0.5 per cent.

“The half-year slippage ratio, which measures new accruals in NPAs as a percentage of standard advances at the beginning of the period, remained stable at 0.7 per cent, although it rose marginally for PVBs,” the RBI said, adding that the write-off ratio fell for PSBs, while it shot up in the case of private lenders in FY26.

Core activity

While banks’ asset quality has remained stable, their year-on-year net interest income (NII) growth has remained subdued in the first half of 2025-26, impacting earnings growth.

Banks’ annual deposit growth continued to decline in successive six months since March 2024, reaching 9.8 percent in September 2025, led by a sharp slowdown in private banks. The decline in the share of cheap CASA deposits and the increase in the share of term deposits within the banking groups continued.

“SCBs’ credit growth remained stable at 11.0 percent YoY at end-September 2025. PSBs’ credit growth declined marginally, but private banks more than compensated with higher growth… In terms of sectoral composition, the share of agricultural and industrial loans in total credits contracted, while that of services and personal loans increased over the past year. Industrial loan growth for PVBs and personal loan growth for PSBs showed a sharp increase in September 2025,” the RBI said.

Published on December 31, 2025