India’s listed banks record a historic low in net non-performing assets, signalling a significant improvement in asset quality and a potential shift in industry resilience amid ongoing credit growth challenges.
Indian listed banks have reached a rare asset-quality milestone: none reported net non-performing assets above 1% in the June quarter of FY27, according to an analysis by Banking Finance based on Indus Equity data. The result marks a notable improvement from the March quarter, when IndusInd Bank was still at the 1% mark.
The data show that only nine listed lenders sat in the 0.5% to 1% band on net NPAs, split between public-sector and private-sector banks. At the lower end of the table, Bank of Maharashtra recorded the cleanest balance sheet, with net NPAs of 13 basis points, followed by Indian Bank, IDBI Bank, Tamilnad Mercantile Bank, Federal Bank, Indian Overseas Bank and Karur Vysya Bank. Among the larger lenders, State Bank of India posted net NPAs of 38 basis points, while HDFC Bank stood at 41 basis points, reinforcing the broader improvement in asset quality across the industry.
Gross bad loans tell a less comfortable story, but they too have eased. Banking Finance said only two listed banks, both private-sector lenders, had gross NPAs below 1% in the quarter, while IndusInd Bank and Bandhan Bank were the only names above 3%. Even so, the overall stock of gross NPAs across listed banks fell to about Rs3.7 trillion, down 11.76% from a year earlier, while net NPAs dropped 9.51% to Rs84,293 crore.
That clean-up has fed directly into earnings. Total industry provisioning for bad loans fell 41.61% year on year to Rs25,448 crore in the June quarter, allowing profits to rise much faster than operating income. According to the same analysis, listed banks’ combined net profit climbed 19.01% to nearly Rs1.10 trillion, the highest quarterly total on record. State Bank of India led with Rs21,121 crore, followed by HDFC Bank at Rs19,060 crore and ICICI Bank at Rs14,805 crore. Together, those three accounted for roughly half of the sector’s total profit.
The bigger question now is whether that profitability can hold. Banking Finance said low-cost current and savings account balances have weakened at many lenders, which matters because those deposits help banks protect margins. IDFC First Bank had the highest CASA ratio at 50.8%, while State Bank of India was at 39.42% and HDFC Bank at 32%. Several lenders saw sharp declines, including RBL Bank, CSB Bank and Bank of India, underscoring the strain on deposit mobilisation.
That pressure is also showing up in net interest margins, or NIMs, the difference between what banks earn on loans and pay out on deposits. HDFC Bank’s NIM slipped to 3.26% in the June quarter from 3.38% in March, while SBI’s rose slightly to 2.86% from 2.81%. Bandhan Bank remained the outlier on the upside, with the highest NIM in the industry at 6.2%, while Punjab National Bank was among the weakest at about 2.5%.
For the sector as a whole, the most pressing operational challenge is not bad loans but funding growth. Banking Finance said credit expanded 17.48% year on year in the June quarter, well ahead of deposit growth of 11.73%. The mismatch was especially clear at IDBI Bank, RBL Bank and Bandhan Bank, and it was visible even among state-owned lenders such as SBI and Canara Bank. The report said overseas bond issuance and NRI inflows may help, but until deposit growth catches up, balance-sheet management is likely to remain tight.
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