India’s banking sector, long noted for its resilience, is grappling with a troubling trend: a rise in loan defaults among retail borrowers. This development has particularly affected leading private banks. Despite projections of a growth of 7.2 per cent in the economy in the fiscal year ending March 2025, many small borrowers are increasingly unable to meet their loan obligations. This issue has emerged against the backdrop of a previously favourable credit cycle where bad loans had dropped to a low of 2.8 per cent of total assets by the end of March. The recent spike in defaults signifies a critical shift that banks and analysts believe could create financial stress in the coming quarters.

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