Bank NPAs fall to 15-year low as asset quality improves, PSBs lead the turnaround

The gross non-performing assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) for domestic operations has declined steadily over the past eight financial years, reaching a 15-year low of 2.15 per cent as of September 30, 2025 (provisional).

This level is lower than that recorded in 2010–11, marking a sustained improvement in the asset quality of India’s banking system, Minister of State for Finance Pankaj Chaudhary informed Parliament on Monday.

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In a written reply to a question in the Lok Sabha, the Minister cited the latest Reserve Bank of India (RBI) data, which shows that as of end-September 2025, the GNPA ratio stood at 2.15 per cent for SCBs.

Public Sector Banks (PSBs) recorded a GNPA ratio of 2.50 per cent, while Private Sector Banks (PVBs) and Foreign Banks reported significantly lower ratios of 1.73 per cent and 0.80 per cent, respectively. The RBI clarified that GNPA data is not compiled on a monthly basis.

Notably, PSBs have witnessed a sharper and more sustained decline in GNPA ratios than private and foreign banks since March 2018, reflecting a significant turnaround in their asset quality.

This improvement follows the RBI’s Asset Quality Review (AQR) initiated in 2015, after which the Government rolled out a comprehensive “4R” strategy—transparent recognition of NPAs, resolution and recovery through effective legal mechanisms, recapitalisation of PSBs, and reforms across the banking and financial ecosystem. These measures have played a critical role in reducing stressed assets, particularly in public sector banks.

The sustained decline in NPAs has lowered provisioning requirements, improved bank profitability, and supported credit growth. It also signals stronger underwriting standards and improved risk management practices in PSBs, underpinned by healthier balance sheets and consistent profitability.

Further strengthening this trend, the slippage ratio—fresh accretion of NPAs as a percentage of standard advances—has shown continuous improvement over the past six financial years. As of September 2025, the slippage ratio for PSBs declined to 0.8 per cent, compared with 1.8 per cent for private sector banks.

The Government and the RBI have implemented a range of preventive and corrective measures to curb NPAs. These include comprehensive, automated Early Warning Systems (EWS) in PSBs, featuring nearly 80 stress indicators to proactively flag potential problem accounts.

Structural reforms to credit discipline were also introduced through the Insolvency and Bankruptcy Code (IBC), 2016, which shifted the framework from a “debtor in possession” to a “creditor in control” regime. As of March 2025, over 30,000 cases involving defaults amounting to ₹13.78 lakh crore were resolved at the pre-admission stage under the IBC.

In addition, amendments to the SARFAESI Act and the Recovery of Debt and Bankruptcy Act have strengthened enforcement and recovery mechanisms. These include enhanced regulatory oversight of Asset Reconstruction Companies by the RBI, mandatory registration of security interests with CERSAI, expansion of Debts Recovery Tribunals (DRTs), and higher pecuniary jurisdiction thresholds to prioritise high-value cases.

PSBs have also set up specialised stressed asset management verticals and branches, adopted a “feet-on-street” recovery model, and deployed business correspondents to accelerate recoveries.

The RBI’s Prudential Framework for Resolution of Stressed Assets, introduced in June 2019, has further enabled early recognition and time-bound resolution of stressed accounts.

The Government and the RBI continue to work in close coordination to strengthen recovery channels including insolvency proceedings, SARFAESI actions, negotiated settlements, and asset sales, while legislative amendments to address delays in insolvency resolution processes are currently under consideration.