Bad loans fall, inflation eases amid Govt-RBI reforms: MoS Finance

India’s banking and macroeconomic landscape has shown marked improvement over the past five years, with gross non-performing assets (NPAs) of public sector banks (PSBs) falling significantly to 2.58 per cent in March 2025 from 9.11 per cent in March 2021, the Rajya Sabha was informed on Tuesday.

This decline reflects a substantial reduction in bad loans, with total gross NPAs dropping from Rs 6.16 lakh crore to Rs 2.83 lakh crore, according to provisional data released by the Reserve Bank of India (RBI).

Advertisement

In a written reply, Union Minister of State for Finance Pankaj Chaudhary attributed the improvement to a combination of structural, legal, and institutional reforms.

He said the sharp decline in NPAs is driven by reforms such as the Insolvency and Bankruptcy Code (IBC), which shifted control of defaulting firms from promoters and excluded wilful defaulters from resolution.

The inclusion of personal guarantors and amendments to laws like SARFAESI and the Recovery of Debt Act strengthened recovery mechanisms. Raising the jurisdiction of Debt Recovery Tribunals and internal reforms by banks, including dedicated asset management teams and field-based recovery efforts, also improved the resolution of bad loans.

Further, RBI’s prudential framework has enabled early recognition and reporting of stressed assets. Transparency in asset valuation has also been improved, with banks mandated to obtain valuations from approved professionals and conduct independent assessments for properties valued at Rs 50 crore or more. RBI guidelines also promote e-auctions as a preferred method of disposing of stressed assets, ensuring better price discovery.

Complementing these banking reforms, the government and RBI have also taken significant measures to moderate inflation.

According to data from the Ministry of Statistics and Programme Implementation (MoSPI) and the Office of the Economic Adviser, average consumer price index (CPI)-based inflation to 4.6 per cent in 2024–25 declined from 5.4 per cent in 2023–24, with inflation dropping further to just 2.1 per cent in June 2025 — the lowest in six years. Wholesale price index (WPI)-based inflation followed a similar downward trend.

Under its flexible inflation targeting framework, the RBI aims to maintain CPI inflation at 4 per cent with a tolerance band of ±2 percentage points.

To contain inflationary pressures, the Monetary Policy Committee of the RBI raised the repo rate from 4 per cent to 6.5 per cent between May 2022 and February 2023. With inflation easing, the RBI has since reduced the policy rate by 100 basis points in 2025 to balance inflation control with the need to support economic growth.

On the fiscal side, the government has deployed a range of interventions to shield consumers from price volatility. These include building buffer stocks of essential food items, releasing grains strategically into the open market, facilitating imports and restricting exports during times of scarcity, and enforcing stock limits on critical commodities to boost supply.

The government has also launched retail sales of select food items under the “Bharat” brand at subsidised rates. Moreover, under the National Food Security Act, around 81 crore beneficiaries continue to receive food grains free of cost.

In a major relief for middle-income households, the government has increased disposable income by raising the income tax exemption limit to Rs 12 lakh per annum, and Rs 2.75 lakh for salaried individuals after standard deduction.

Together, these fiscal and monetary policy actions have helped create a more stable macroeconomic environment, reinforcing India’s economic resilience and paving the way for sustained growth.