India's economy is navigating a complex landscape marked by both resilience and emerging threats, according to the July 2026 Panorama report by 360 ONE Asset. While the banking sector demonstrates robust health, an unusually weak monsoon, exacerbated by strengthening El Niño conditions, poses significant risks to inflation and agricultural production.
Monsoon Deficit Worsens Across India
After a brief recovery in early July, the southwest monsoon's improvement proved short-lived. As of July 22, cumulative rainfall across India remained 19% below normal, with deficits widening significantly after mid-July. This shortfall is not localized, affecting 20 of India's 36 meteorological subdivisions, which collectively cover 54% of the country's land area. The East and North-East regions are the worst hit, experiencing a 32% rainfall deficit, followed by the South Peninsula with a 26% shortfall.
Strengthening El Niño conditions are identified as a major factor suppressing rainfall, and are expected to intensify, maintaining pressure on the monsoon throughout the remainder of the season.
Agricultural Output Under Pressure
The weak rains are already impacting agricultural activity. Kharif sowing stood at 59.6% of the normal sown area as of July 17, lagging behind the four-year average of 63.7%. Major crop categories, including rice, pulses, oilseeds, and coarse cereals, are all behind their typical planting pace.
Despite these challenges, the report offers a cautiously optimistic outlook on food security. Reservoir storage levels largely remain near normal across most of the country, though southern India faces greater stress. Crucially, the Food Corporation of India (FCI) holds substantial wheat and rice stocks, well above strategic reserve requirements, providing the government with a buffer to intervene if food prices accelerate.
Inflation Edges Higher, RBI Stance Unchanged
Inflation has begun an upward trend, primarily driven by increases in food and fuel prices. While headline consumer inflation has picked up, the report notes that underlying core inflation, particularly when excluding gold and silver, remains relatively subdued at 2.5%, suggesting broader price pressures are still contained.
Given the prevailing uncertainty surrounding the monsoon and ongoing geopolitical developments in West Asia, 360 ONE Asset anticipates that the Reserve Bank of India (RBI) will maintain its current policy status in the near term, closely monitoring the evolving balance between growth and inflation.
Banking Sector Remains a Pillar of Strength
In stark contrast to the agricultural headwinds, India's banking system continues to strengthen significantly. The report highlights that the banking sector's Gross Non-Performing Asset (GNPA) ratio has fallen to a multi-decade low of 1.8% as of March 2026, down from 2.3% a year prior. RBI stress tests indicate that even under adverse scenarios, asset quality would only modestly deteriorate through 2028.
Consumer credit quality has also shown improvement across banks, Non-Banking Financial Companies (NBFCs), and housing finance companies, marked by lower loan slippages and stronger recovery rates. While public sector banks still carry slightly higher consumer loan NPAs compared to private lenders, the overall trend remains favorable.
Small Loans and MSMEs Show Mixed Signals
Not all segments of the credit market are equally robust. The report identifies small-ticket personal loans under ₹50,000 as the primary area of concern, particularly within fintech lenders who dominate over half of this segment. Delinquencies in this category continue to rise despite broader improvements elsewhere.
Conversely, gold loans are expanding rapidly, driven not by new borrowers but by existing customers leveraging higher gold prices to secure larger loans and refinance older debts. MSME lending also remains strong, with overall loan growth of 22.8% in March 2026, led by micro-enterprises. However, early warning signals, such as rising stress in smaller businesses reflected in higher SMA-1 accounts, are beginning to emerge. Microfinance appears to be stabilizing after an extended slowdown, with outstanding credit increasing modestly for the first time after seven consecutive quarters of decline, and borrower stress indicators improving.