Bank provisioning at 3-year low on better recoveries, asset quality

ET Intelligence Group: Loan loss provisioning by banks at the aggregate level dropped to a 12-quarter low in the three months to March 2026, aided by lower provisioning from private sector banks amid improving asset quality and bad loan recoveries. For a sample of 29 banks, loan loss provisioning dropped by 17.4% sequentially and 23.5% year-on-year to ₹19,314.3 crore. The previous low was ₹18,169.5 crore in the March 2023 quarter. The quarterly bad loan provisioning by the sample banks was under ₹20,000 crore on three occasions in the past 13 quarters.

Majority of the banks from the sample, 23 out of 29 to be precise, reported lower provisioning year-on-year. In addition, 15 out of 17 private sector banks and eight out of 12 public sector banks (PSBs) showed contraction in loan loss provisioning.

The asset quality of the banking sector has been improving steadily over the past few quarters. CARE Ratings mentioned in a recent report that the gross non-performing asset ratio dropped to a multi-year low of 1.8% in the March 2026 quarter. "The improvement was driven by sustained recoveries, upgrades, calibrated write-offs, and lower incremental stress formation," the ratings agency said in the report.


For private sector banks, the provisioning nearly halved to ₹7,236.6 crore from the previous quarter and fell by 28% year-on-year. Among the top banks, ICICI Bank reported the sharpest fall in total provisioning, which nearly halved sequentially and year-on-year to ₹96 crore. Other private sector banks that reported more than a 90% year-on-year decline in provisioning included South Indian Bank and Yes Bank.

For PSBs, loan loss provisioning increased by 27% sequentially while falling by 20.4% year-on-year to ₹12,078 crore. Their share in the sample's provisioning increased to an eight-quarter high of 62.5% in the March quarter, driven by a sharp jump in the case of a few PSBs. Bank of Baroda's loan loss provisioning nearly doubled to ₹2,566 crore year-on-year, while for Punjab National Bank, it rose by 54% to ₹906 crore.