RBI stress test findings: Banks’ gross non-performing assets may improve to 1.9% by FY27 from 2.1% in Sept 2025

In the event of a potential macroeconomic shock, India’s scheduled commercial banks (SCBs) are likely to show better resilience going forward, according to the findings of the Reserve Bank of India’s (RBI) stress test for the banking system.

The gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) may improve to 1.9 per cent in March 2027 from 2.1 per cent in September 2025, the RBI’s Financial Stability Report (FSR) showed.

On Tuesday, data from the RBI’s annual Trends and Progress of Banking in India report showed that gross NPAs of SCBs in India hit multi-year lows of 2.1 per cent as at September-end 2025, from 2.2 per cent at the end of March.

The estimate for GNPA ratio for March 2027 is based on the macro stress tests that assess the resilience of banks under adverse macroeconomic shocks.

“The aggregate GNPA ratio of the 46 banks’ may improve from 2.1 per cent in September 2025 to 1.9 per cent in March 2027 under the baseline scenario,” the RBI said in the report.

GNPA is calculated by dividing a bank’s gross non-performing assets (interest/principal overdue for 90+ days) by the bank’s total lending portfolio.

The test also assessed GNPAs under two other scenarios — adverse 1 and adverse 2. The GNPA may rise to 3.2 per cent and 4.2 per cent, under adverse scenarios 1 and 2, respectively, the report said.

The adverse scenario 1 assumed that a gradual slowdown in global growth, on account of heightened economic uncertainty as well as lingering geopolitical conflicts, would lead to a gradual drop in domestic GDP growth and a moderate rise in domestic inflation over time. In adverse scenario 2, it is assumed that global trade uncertainties, unfavourable trade deals and higher trade gap would result in a sharp dent in the domestic GDP growth. Further, capital outflows, currency depreciation and supply dislocations would push up inflation beyond the tolerance band over time, leading to a tight monetary policy, it assumed.

The macro stress results further showed that the aggregate capital to risk-weighted assets ratio (CRAR) — which measures a bank’s financial strength — of 46 major banks may decline from 17.1 per cent in September 2025 to 16.8 per cent by March 2027 under the baseline scenario. It may further fall to 14.5 per cent and 14.1 per cent under the adverse scenarios 1 and 2, respectively.

However, none of the banks would fall short of the minimum CRAR requirement of 9 per cent even under the adverse scenarios.

The tests revealed that the Common Equity Tier 1 (CET1) ratio — which measures a lender’s core capital against risk weighted-assets — of banks may marginally improve from 14.6 per cent in September 2025 to 14.8 per cent by March 2027 under the baseline scenario. It may, however, decrease to 12.7 per cent and 12.3 per cent under adverse scenario 1 and adverse scenario 2, respectively. All banks would be able to meet the minimum CET1 ratio requirement, the report said.

Stress tests on banks’ credit concentration showed that in the extreme scenario of default (borrowers is considered to move from the standard category to the sub-standard category) in payment by the top three individual borrowers, in terms of standard exposure of respective banks, the system level GNPA ratio would rise by 350 bps, and CRAR and CET1 ratio would decline by 90 bps and 80 bps, respectively, it said.

The report added that a system level stress test under a baseline and two stress scenarios was conducted on a sample of 174 non-banking financial companies (NBFCs) over a one-year horizon for assessing the resilience of the NBFC sector to credit risk shocks.

“Under the baseline scenario, the system-level GNPA ratio of the sample NBFCs may rise from 2.3 per cent in September 2025 to 2.9 per cent in September 2026,” the report showed.