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Indian banks' gross bad loan ratio may rise from a 12-year low if risks emanating from credit quality, interest rates and geopolitics play out, a report published by the central bank on Monday showed. ET Year-end Special Reads How India's political landscape changed after assembly polls in eight states Trent, Zomato among 33 biggest wealth creators this year. What will make money in 2025? Telcos investment recovery in limbo, price war with satcom services likely in 2025 Gross bad loan ratio is the proportion of bad assets to total loans.
This key measure could rise to 3% by the end of March 2026 from a 12-year low of 2.6% in September 2024 for 46 banks under the so-called baseline scenario, the Reserve Bank of India ( RBI ) said in the Financial Stability Report. The bad loan ratio could rise to 5% and 5.
3% under two separate high-risk scenarios, it said. While the aggregate capital ratios of banks may reduce, no lender will fall short of the minimum capital requirement of 9% even in adverse cases, the RBI said. Artificial Intelligence(AI) Java Programming with ChatGPT: Learn using Generative AI By - Metla Sudha Sekhar, IT Specialist and Developer View Program Artificial Intelligence(AI) Basics of Generative AI: Unveiling Tomorrows Innovations By - Metla Sudha Sekhar, IT Specialist and Developer View Program Artificial Intelligence(AI) Generative AI for Dynamic Java Web Applications with ChatGPT By - Metla Sudha Sekhar, IT Specialist and Developer View Program Artificial Intelligence(AI) Mastering C++ Fundamentals with Generative AI: A Hands-On By - Metla Sudha Sekhar, IT Specialist and Developer View Program Artificial Intelligence(AI) Master in Python Language Quickly Using the ChatGPT Open AI By - Metla Sudha Sekhar, IT Specialist and Developer View Program Marketing Performance Marketing for eCommerce Brands By - Zafer Mukeri, Founder- Inara Marketers View Program Office Productivity Zero to Hero in Microsoft Excel: Complete Excel guide 2024 By - Metla Sudha Sekhar, IT Specialist and Developer View Program Finance A2Z Of Money By - elearnmarkets, Financial Education by StockEdge View Program Marketing Modern Marketing Masterclass by Seth Godin By - Seth Godin, Former dot com Business Executive and Best Selling Author View Program Astrology Vastu Shastra Course By - Sachenkumar Rai, Vastu Shashtri View Program Strategy Succession Planning Masterclass By - Nigel Penny, Global Strategy Advisor: NSP Strategy Facilitation Ltd.
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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. Over the last year, the RBI has warned the financial sector against "all forms of exuberance", tightened rules for credit card and personal loans, made it more expensive for non-banking finance companies to borrow from banks and imposed business restrictions on non-compliant lenders.
It also wants lenders to adopt strong risk management and governance frameworks and to raise more capital. On the whole, banks' asset quality parameters have improved and their capital levels remain robust, the central bank said. The Indian financial system is expected to remain sound and vibrant, supported by further improvement in balance sheets and strong buffers, the RBI said.
"Although net interest margins have narrowed, banks' return on equity and return on assets have improved," it said. The balance sheets of non-banking finance companies have strengthened, the RBI said, with stress tests indicating that even under a high-risk scenario, their capital requirements would remain much above the minimum needed level. Nominations for ET MSME Awards are now open.
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