Q3FY26 Asset Quality Review: NPAs Trend Lower Across Banks

Private Banks Maintain Strong Asset Quality

Asset quality in the private banking space remains relatively resilient in Q3FY26. The average gross NPA ratio stands at 1.92%, reflecting disciplined underwriting and stable credit performance.

Top Performers (Lowest Gross NPAs):

• HDFC Bank – 1.24%
  
  
• Kotak Mahindra Bank – 1.30%
  
  
• Axis Bank – 1.40%
  

These banks continue to demonstrate strong risk management practices and steady retail credit performance.

Banks Facing Higher Stress:

• Bandhan Bank – 3.33%
  
  
• IndusInd Bank – 3.56%
  

Elevated stress levels in select portfolios remain a monitorable factor for these lenders.

PSU Banks Show Continued Improvement

The PSU banking segment reported an average gross NPA of 2.27%, higher than private peers but reflecting sustained improvement over recent quarters.

Better Performers:

• Indian Overseas Bank – 1.54%
  
  
• State Bank of India – 1.57%
  
  

Banks with Relatively Higher Stress:

• Punjab National Bank – 3.19%
  
  
• Union Bank of India – 3.06%
  

Despite elevated ratios at select banks, the broader trend indicates structural clean-up and improved recovery cycles.

Sequential Trend: Balance Sheet Repair Continues

On a sequential basis:

• Private banks’ average gross NPA moderated by 0.28%
  
  
• PSU banks’ average gross NPA declined by 0.24%
  

This steady moderation signals:

• Improved recoveries and upgrades
  
  
• Controlled slippages
  
  
• Stronger provisioning buffers
  
  
• Ongoing balance sheet repair across the banking system
  

Sector-Wide Takeaways

• Private banks continue to outperform PSU peers on asset quality metrics.
  
  
• PSU banks are narrowing the gap with sustained NPA reductions.
  
  
• System-level stress remains contained with no signs of broad-based deterioration.
  
  
• Credit costs are likely to remain manageable in the near term.
  

Outlook for the Banking Sector

With gross NPAs trending lower sequentially across both segments, the Indian banking sector appears to be in a structurally stronger position compared to previous cycles.

If credit growth sustains and slippages remain controlled, profitability metrics could further improve in the coming quarters, supported by lower provisioning requirements and stable net interest margins.