Indian banks in best shape in a decade: Motilal
Indian banks are in the strongest position they have been in a decade, according to Motilal Oswal Financial Services Ltd. The firm highlighted that non-performing assets (NPAs) are nearing historic lows and banks have stronger balance sheets thanks to robust capital buffers. Motilal Oswal's assessment comes as a sign of significant improvement in the health of the banking sector, with cleaner balance sheets and solid fundamentals behind the outlook.
The improvement is evident in the data showing that gross non-performing assets of scheduled commercial banks fell to a multi-decadal low of around 1.8% in March 2026, while net NPAs stood at about 0.4%. Capital adequacy also remained comfortable, further supporting the robustness of the banks.
This turnaround in the banking sector's health contrasts sharply with the stress witnessed a decade ago, when high corporate leverage and mounting bad loans had a negative impact on bank profitability and credit growth. The strong balance sheets and improved asset quality have also led to higher profitability and adequate capital, enhancing banks' capacity to support credit growth.
Motilal Oswal's assessment is in line with the Reserve Bank of India's view on the banking system, which also highlighted the resilience of banks with strong capital buffers capable of weathering severe stress scenarios. Stronger bank balance sheets mean the sector is well-positioned to expand lending while maintaining prudent underwriting standards.
The improvement in asset quality is a sharp turnaround from the decade-long period of stress, when high corporate leverage and bad loans weighed on bank profitability and constrained credit growth. With credit growth now accelerating to 14.5% year-on-year in 2025-26 and deposit growth at 11.5%, Motilal Oswal believes the banking sector has the potential to remain a beneficiary of the improving credit cycle.
The stronger corporate balance sheets and sustained economic activity will likely fuel demand for loans, suggesting a promising outlook for Indian banks.
Written by urgent.news from The Economic Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
