New Delhi: India’s banking sector has continued to strengthen, with asset quality improving further to its best level in decades and capital buffers remaining comfortably above regulatory norms, according to the Reserve Bank of India’s latest Trend and Progress of Banking report released on Monday. The report assesses the performance of commercial banks, co-operative banks and non-banking financial companies (NBFCs) during 2024-25 and reviews key developments up to the end of September 2025.
The central bank noted that the gross non-performing assets (GNPA) ratio of banks declined to 2.1% at end-September 2025, compared with 2.2% at end-March 2025. This marks a further improvement after the banking system had already reached a multi-decadal low in bad loans at the close of the previous financial year.
The RBI attributed the continued decline in stressed assets to better credit underwriting, improved recovery mechanisms and a favourable operating environment for borrowers.
Growth in bank balance sheets remained healthy, though the pace eased from the highs seen a year earlier. Scheduled commercial banks recorded double-digit growth in both deposits and credit during 2024-25, reflecting sustained demand for loans from households and businesses. However, the RBI observed that the momentum moderated compared with the previous year, even as funding conditions remained stable and banks continued to play a key role in supporting economic expansion and financial inclusion.
Assets Ratio
Capital strength across the banking system stayed robust. The capital to risk-weighted assets ratio of scheduled commercial banks stood at 17.4% at end-March 2025 and slipped marginally to 17.2% by end-September 2025. Despite the slight decline, the RBI said capital adequacy levels remain well above minimum requirements, providing banks with sufficient headroom to absorb potential shocks and sustain lending activity.
Profitability indicators remained strong, although some moderation was visible in the first half of 2025-26. During 2024-25, scheduled commercial banks reported a return on assets of 1.4% and a return on equity of 13.5%. These ratios softened to 1.3% and 12.5%, respectively, in the first six months of the current financial year, reflecting a normalization from peak levels while still indicating healthy earnings performance.
Co-op Banks & NBFCs
The RBI also pointed to encouraging trends among co-operative banks and NBFCs. Urban co-operative banks recorded higher consolidated balance sheet growth in 2024-25 compared with the previous year, while their asset quality improved for the fourth consecutive year. Capital buffers and profitability in this segment also strengthened, signalling better financial resilience. NBFCs, meanwhile, continued to post double-digit credit growth, alongside improvements in asset quality and the maintenance of strong capital positions.
The findings underscore the resilience and stability of India’s financial system, the RBI said. With low levels of bad loans, comfortable capital buffers and sustained profitability, the banking sector is well positioned to support credit demand, facilitate investment and consumption, and contribute to the country’s broader economic growth in the period ahead.