RBI Financial Stability Report 2026: Bank Bad Loans to Stay Below 2%, Cyber Risks Rise

India's banking sector is expected to keep its combined gross non-performing asset (GNPA) ratio below the 2% mark over the next three years under the Reserve Bank of India's (RBI’s) baseline scenario. This, even as the central bank flagged rising household debt, rapid growth in gold-backed loans and increasing cyber threats in its latest Financial Stability Report released on Tuesday.

The banking system's GNPA ratio stood at 1.8% at the end of March 2026. The RBI said it could edge up to 1.9% by March 2028, while remaining below the level generally considered healthy for the sector. Under a severe stress scenario, which assumes slower economic growth and higher inflation, the GNPA ratio could rise to 3.8% to 4.1% by March 2028, according to the report.

Pace In Credit Growth

The report also showed that credit growth gathered pace during FY26. Bank lending expanded 14.5%, up from 11% a year earlier, with state-run banks continuing to grow faster than private sector lenders.

Profitability remained strong, supported by sustained credit growth, stable interest margins and healthy growth in other operating income, the RBI said.

Gold Loans, Household Debt Under Watch

The RBI raised concerns over the sharp rise in gold-backed lending. Gold loans have become the largest category within non-housing retail credit, growing at a compounded annual rate of 42.4% since March 2024, nearly twice the pace of overall non-housing retail loans.

Separate RBI data released on Tuesday showed outstanding gold loans reached ₹5,142 billion as of May 2026, rising more than 100% from a year ago.

While higher gold prices have improved collateral values, the RBI said rapid growth in lending against gold amid volatile prices requires continued vigilance. A prolonged fall in gold prices could weaken collateral coverage, increase borrower stress and lead to higher delinquencies, it added.

The central bank also noted that household debt rose to 45.5% of gross domestic product (GDP) by September 2025, with consumption loans remaining the biggest driver of household borrowing.

Fintech Lending Expands

Fintech lenders strengthened their position in India's small-ticket personal loan market, accounting for 56.8% of loans below ₹50,000 as of March 2026 after posting 41.6% year-on-year credit growth. Their share was well ahead of non-banking financial companies (NBFCs) and housing finance companies at 30.7%, while banks accounted for 10.1%.

However, stress remained higher among fintech-originated loans. Delinquencies in loans below ₹50,000 stood at 6.4%, compared with 5.7% for NBFCs and 4.1% for banks. The RBI said unsecured loans made up 70.5% of fintech lenders' portfolios, with nearly half extended to borrowers below 35 years of age.

Across the broader retail credit market, asset quality improved. Business loan delinquencies declined to 1.8%, credit card delinquencies eased to 1.4%, and personal loan delinquencies fell to 0.9%.

Signs Of Stabilisation In The Microfinance Sector

The microfinance segment showed signs of recovery after a prolonged slowdown. Credit to the sector grew for the first time in seven consecutive quarters of decline. However, the number of borrowers fell by 22.7 lakh during the latest quarter.

Asset quality continued to improve, with loans overdue between 31 and 180 days declining for the fifth straight quarter. Multiple borrowing also eased, as the share of borrowers with loans from three or more lenders dropped to 9.7% in March 2026.

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Cyber Risks Rise

The report also said cybersecurity has become a major financial stability concern. An RBI survey of banks and non-bank lenders found artificial intelligence (AI)-enabled cyber threats were viewed as the biggest risk over the next 12 months, although financial institutions have strengthened cyber risk management practices.

Employee awareness and training remain areas that need further improvement, the central bank said.