The bank stays steady on its lending path while improving asset quality in a softer growth environment.

What really shows if a bank is strong or struggling? For many public lenders, the answer lies in one number, the gross NPA ratio. It reveals whether growth is steady or built on risk. In its latest quarterly update, Indian Bank shows how it is carefully balancing stability with expansion.

Credit Growth Stays Firm Despite Softer Outlook

In its Q2 FY2025-26 results announced in October 2025, Indian Bank maintained its credit growth forecast at 11–13 per cent for the financial year.

The management confirmed that advances had grown 12.65 per cent year-on-year, touching ₹6.20 lakh crore, while deposits rose 12 per cent to ₹7.77 lakh crore. Total business stood at ₹13.97 lakh crore, showing strong traction in both corporate and retail lending.

The timing of this update is important. The Reserve Bank of India’s June 2025 Financial Stability Report (FSR) noted that the overall banking sector’s credit expansion outlook had softened. In a separate statement, RBI Governor Sanjay Malhotra said, “Growth outlook is softer and below expectations.”

Parameter	Q2 FY2026	Q2 FY2025	Yearly Growth
Advances	₹6.20 lakh crore	₹5.50 lakh crore	12.65%
Deposits	₹7.77 lakh crore	₹6.94 lakh crore	12.00%
Total Business	₹13.97 lakh crore	₹12.45 lakh crore	12.34%

The above table shows that Indian Bank continues to lend at a stable pace even when the wider credit market cools. It has managed to balance growth and stability, something that remains a challenge for many public lenders.

What is Credit Growth And NPA Targets?

Credit growth refers to how much a bank’s lending portfolio expands in a given period. A high rate signals business confidence and lending appetite. The gross Non-Performing Asset (NPA) ratio reflects the share of loans not being repaid on time. Lowering this ratio indicates stronger recovery and better loan discipline.

In the same FSR, the RBI projected that the system-wide GNPA ratio may rise from 2.3 per cent in March 2025 to 2.5 per cent by March 2027. Against that backdrop, Indian Bank’s decision to target a gross NPA below 2 per cent shows confidence in its asset management strategy.

Category	GNPA (%)	Time Period	Source
Indian Banking System	2.30%	March 2025	RBI FSR 2025
System Forecast	2.50%	March 2027	RBI FSR 2025
Indian Bank	2.60%	Q2 FY2026	Indian Bank Exchange Filing

The table confirms that Indian Bank’s current GNPA level is already better than the industry forecast. Maintaining this lead could place it among the top performers in the public sector.

Comparing With Earlier Coverage

This development connects with earlier coverage during the PSU bank merger phase. When Indian Bank merged with Allahabad Bank in 2020, many analysts predicted that integration risks might slow growth. However, the opposite has happened.

Now, fresh data backs that trend: Indian Bank’s Provision Coverage Ratio (PCR) climbed to 98.28 percent in Q2 FY2026 from 96.80 percent in 2024. Its Special Mention Account (SMA) portfolio fell to 7.35 percent from 12.80 percent.

The Net NPA dropped from 0.27 percent to 0.16 percent. These numbers point to cleaner asset books and sustained lending momentum.

Metric	Q2 FY2025	Q2 FY2026	Improvement
Provision Coverage Ratio	96.80%	98.28%	+1.48 points
SMA Book	12.80%	7.35%	-5.45 points
Net NPA	0.27%	0.16%	-0.11 points

The table above shows a clear improvement in credit discipline. This progress has allowed Indian Bank to strengthen its recovery process and reduce future stress.

As LoansJagat covered in “Indian Bank Stocks Surge as RBI Eases Capital Market Lending Rules”, reforms and positive sentiment in banking strengthen confidence in PSU banks’ recovery.

Policy And Government Response

The government’s data tells a similar story. According to a Press Information Bureau (PIB) release dated March 2025, the gross NPA ratio of public sector banks declined to 2.58 per cent, compared to 9.11 per cent in March 2021. The Ministry of Finance credited this decline to strong recovery mechanisms and better loan monitoring systems.

Year	PSU Banks Gross NPA (%)	Source
March 2021	9.11%	PIB, Ministry of Finance
March 2023	5.53%	PIB, Ministry of Finance
March 2025	2.58%	PIB, Ministry of Finance

The above data indicates a structural shift. The clean-up that began under government-led reforms is now visible in actual numbers. For Indian Bank, the push to lower GNPA below 2 per cent aligns perfectly with this broader national trend.

Sector-Wide Challenges

The softer growth outlook flagged by the RBI shows that banks need to focus more on quality than volume. For Indian Bank, that means being selective about unsecured loans and focusing on secured retail and SME segments.

Managing Director Binod Kumar, in a recent interview, mentioned that increased scrutiny over unsecured loans could slightly affect growth but would keep the balance sheet safe.

At the same time, rising costs are a concern. The bank’s cost-to-income ratio increased by 89 basis points due to higher wage provisions and technology investments. However, the management expects cost efficiency to improve as digital transactions grow.

This approach fits within the public sector bank credit growth guidance, where quality lending is being prioritised over rapid expansion. Indian Bank’s ability to keep profitability intact while cutting NPAs shows that its strategy is working.

Conclusion

The broader Indian banking sector credit expansion outlook points towards cautious optimism. While overall lending growth may ease, the structural health of banks has improved. Indian Bank’s recent numbers show that it is moving in the right direction, steady credit growth, better recovery, and a clear target of lowering GNPAs.

In summary, the Indian Bank credit growth forecast 2025 and its new gross NPA target improvement reflect a mature approach to growth. The government’s continued focus on clean balance sheets, coupled with RBI’s oversight, supports this cautious optimism.

As India’s financial landscape evolves, Indian Bank’s path demonstrates how sustainable growth can coexist with strict risk control. The coming quarters will reveal how far this discipline can take the lender, but for now, it stands as a strong example of a bank that has learned from the past and built a steadier future.

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