Under a baseline stress test scenario, bad loans for 46 Indian banks could rise to 1.9% of the total loan book by March 2028, from 1.8% as on March-end this year, the RBI report said
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The bad-loan ratio for Indian banks could start inching up from multi-year lows through March 2028 and may even worsen further if geopolitical risks intensify, the central bank said on Tuesday.Under a baseline stress test scenario, bad loans for 46 Indian banks could rise to 1.9% of the total loan book by March 2028, from 1.8% as on March-end this year, according to the Reserve Bank of India’s bi-annual Financial Stability Report. Under adverse and severe scenarios, which assumes widespread geopolitical risks, the share of bad loans may rise to 3.8% and 4.1% respectively, the RBI said.If the RBI’s projections are realised, it reverses a secular downward trend that has been in place from 2017-18 and will highlight how the conflict in West Asia has emerged as a key risk for Indian lenders.A prolonged escalation could drive up crude prices, stoke inflation and slow economic growth, eroding the repayment capacity of borrowers in energy-intensive industries and export-linked sectors. If the shock persists, banks may have to contend with higher bad loans and provide for more capital to shore up their balance sheets.“We acknowledge that the risk of adverse external shocks has increased, with geopolitical conflicts and fragmentation emerging as key challenges for policymakers,” Governor Sanjay Malhotra wrote in the report.“In this environment, preserving financial stability, strengthening the financial system and building systemic resilience have become more important than ever.”While credit quality has improved across most sectors, farming was a laggard and continued to show the highest non-performing loans, the RBI said in the report.Still, no bank would drop below the minimum capital requirement of 9% under the baseline scenario, even though one and two banks may fall below the requirement under adverse and severe stress scenarios, respectively, the RBI said.More stories like this are available on bloomberg.com©2026 Bloomberg L.P.Published on July 1, 2026
