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

Synopsis

Banks' loan loss provisioning hit a 12-quarter low in March 2026, driven by private sector banks amid improving asset quality and recoveries. Overall provisioning dropped 23.5% year-on-year, with most banks reporting lower provisions. Public sector banks, however, saw a sequential increase in provisioning.

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.

Agencies

on the mend Lenders set aside 23.5% less YoY in March quarter; private ones fared better

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.

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