New Delhi: India’s banking system has hit a fresh milestone in its long-running clean-up cycle, with the gross non-performing assets (NPA) ratio of scheduled commercial banks (SCBs) for domestic operations falling to a historic low of 2.15% as of end-September 2025, according to data shared by the Ministry of Finance in Parliament on Monday.
The ratio is now below the levels seen in 2010–11, underscoring the scale of the turnaround since the bad-loan crisis that peaked in the middle of the last decade.
PSBs show sharper improvement
As per the latest available RBI data, the gross NPA ratio stood at 2.50% for public sector banks (PSBs), 1.73% for private sector banks, and 0.80% for foreign banks as of September 30, 2025. Notably, PSBs have recorded a steeper decline in bad loans compared with private and foreign banks since March 2018, reflecting the impact of capital infusion, governance reforms and tighter monitoring.
The steady fall in NPAs has translated into lower provisioning requirements, which in turn has boosted bank profitability and strengthened balance sheets—freeing up capital for fresh lending and supporting credit growth.
Slippages also under control
The improvement is not just in legacy bad loans. The slippage ratio—fresh accretion of NPAs as a share of standard advances—has also eased. For PSBs, slippages improved to 0.8% in September 2025, significantly lower than 1.8% for private sector banks, indicating tighter underwriting and earlier detection of stress.
What drove the clean-up
Officials attribute the turnaround to a combination of regulatory and policy measures set in motion after the RBI’s Asset Quality Review (AQR) in 2015 and the government’s 4R strategy—recognition, resolution, recapitalisation and reform.
Key pillars of the effort include:
A shift from a ‘debtor in possession’ to a ‘creditor in control’ regime under the Insolvency and Bankruptcy Code (IBC), which has changed borrower behaviour and encouraged early settlements.
Stronger recovery tools under SARFAESI and the Debt Recovery Tribunal framework, alongside tighter oversight of asset reconstruction companies.
Early Warning Systems in PSBs with multiple triggers to detect stress sooner, and specialised stressed-asset management verticals to speed up recoveries.
The government also pointed out that a large number of cases—covering defaults worth Rs 13.78 lakh crore—have been settled at the pre-admission stage under the IBC by March 2025, highlighting the law’s deterrent effect.
What it means for credit and growth
For the broader economy, cleaner bank balance sheets mean greater risk appetite and lending capacity, especially to infrastructure, MSMEs and retail borrowers. With profitability improving and capital buffers stronger, banks are better placed to support the next leg of the investment cycle.
However, bankers and analysts caution that sustaining asset quality will depend on disciplined underwriting, close monitoring of new-age lending segments and timely resolution of emerging stress—especially in a more volatile global environment.
Still, with gross NPAs at a multi-decade low, the numbers mark a structural reset for India’s banking system after years of balance-sheet repair.