Indian banks hit decade-high returns but profit set to soften

Some of the more recent reforms are untested through a down-cycle, said Fitch.

Indian banks’ return on assets have risen to its highest in a decade in FY2025, according to data from Fitch Ratings and the Reserve Bank of India (RBI).

Return on assets is now comparable to peer banking systems in the Asia Pacific region with operating environments that are relatively low to moderate credit risk, at around 1.3% in recent years.

The sector’s non-performing loan ratio fell to 2.2% in H1 FY2026, from a peak of 11.2% in FY2019. Common equity tier 1 (CET1) ratio is at 14.8%, compared to 9.3% in FY2014.

“Banking system metrics are the strongest in years, though some more recent reforms are untested through a down-cycle,” Fitch said in a report published on 6 January 2026.

The implementation of an expected credit loss (ECL) framework beginning April 2027 should contribute to reduced volatility by helping smooth earnings over the cycle, Fitch added.

An earlier report by Fitch, however, said that whilst performance will be ‘robust’ in 2026, banks in India are expected to see profitability soften slightly. This is because declining deposit costs will be offset by lower loan yields.

Overall, Indian banks are set to benefit from enhanced regulatory oversight in 2026, which should reduce systemic risks and support a better operating environment.