Indian banks are in their best shape in a decade: MoSL

According to Motilal Oswal Financial Services Ltd, Indian banks are at their strongest point in ten years, with NPAs close to record lows and balance sheets bolstered by solid capital cushions, as noted in a post on X.

Key Takeaways

• Motilal Oswal says Indian banks are in their strongest shape in a decade, with NPAs near record lows.
• Scheduled commercial banks’ gross NPAs fell to a multi-decade low of about 1.8% in March 2026, with net NPAs at 0.4%.
• Stronger capital cushions and cleaner balance sheets underpin the sector’s improved health.
• Better asset quality has coincided with higher profitability, giving banks more room to expand lending.

The firm emphasized the notable boost in banking sector health, citing cleaner balance sheets and stronger fundamentals as pillars of the optimistic outlook for Indian banks. It reiterated, “Indian banks are enjoying their best condition in a decade, with NPAs hovering near historic lows,” in its X update.

This view follows a steady rise in asset quality throughout the banking system. Recent data show that scheduled commercial banks’ gross NPAs dropped to a multi‑decade low of roughly 1.8 % in March 2026, with net NPAs at about 0.4 %.

Capital adequacy stays comfortable. Motilal Oswal’s analysis highlights that the banking sector has grown stronger after an extended cleanup of troubled assets and balance‑sheet repairs. Better asset quality has coincided with higher profitability and sufficient capital, giving banks more leeway to expand lending. The firm’s take aligns closely with the Reserve Bank of India’s view of the system.

The Reserve Bank’s latest Financial Stability Report confirms that banks stay resilient, backed by robust capital buffers and the capacity to endure severe stress. Motilal Oswal also notes that stronger bank balance sheets bode well for the wider credit cycle.

With NPAs near historic lows and capital positions sound, banks can increase lending while keeping underwriting standards prudent. The asset‑quality turnaround contrasts sharply with the previous decade’s stress, when high corporate leverage and rising bad loans squeezed profitability and limited credit expansion.

The optimistic stance coincides with renewed momentum in credit growth. System‑wide bank credit growth accelerated to 14.5 % year‑on‑year during 2025‑26, while deposit growth stood at 11.5 %, according to data cited in recent assessments of India’s financial system.

Motilal Oswal’s perspective suggests the banking sector could remain a key beneficiary of the improving credit cycle, especially as healthier corporate balance sheets and sustained economic activity support loan demand.

Published on August 24, 2026