India’s banking sector has recorded a sustained improvement in asset quality, with the gross NPA ratio of Scheduled Commercial Banks for domestic operations falling to a historic low of 2.15% at the end of September 2025. This is lower than the 2010-11 level and reflects a continuous decline over the last eight financial years. Public sector banks have also shown a sharp improvement, supported by reforms in recognition, resolution, recapitalisation and recovery of stressed assets.
Historic Decline In Gross NPAs
The gross NPA ratio measures gross non-performing assets as a percentage of gross loans and advances. As on 30 September 2025, the ratio stood at:
- SCBs – 2.15%
- Public Sector Banks – 2.50%
- Private Sector Banks – 1.73%
- Foreign Banks – 0.80%
Public sector banks have seen a larger fall in gross NPA ratio than private and foreign banks since March 2018.
Reforms After Asset Quality Review
The Reserve Bank of India initiated the Asset Quality Review in 2015 to identify stressed assets transparently. This was followed by the Government’s 4R strategy:
- Recognising NPAs transparently
- Resolving stressed accounts
- Recapitalising public sector banks
- Reforming the banking and financial ecosystem
These measures helped clean up balance sheets and improve lending discipline.
Improved Recovery And Credit Discipline
The slippage ratio, which shows fresh accretion of NPAs as a share of standard advances, has also improved. Recently, it stood at 0.8% for public sector banks, lower than 1.8% for private sector banks. Early Warning Systems with around 80 triggers, use of third-party data, and time-bound remedial action have strengthened monitoring. The Insolvency and Bankruptcy Code, 2016 has shifted credit culture towards a creditor-in-control framework. By March 2025, more than 30,000 applications involving default of Rs. 13.78 lakh crore had been settled before admission.
Legal And Institutional Recovery Measures
Recovery has been supported through SARFAESI, the Recovery of Debt and Bankruptcy Act, Debt Recovery Tribunals, civil suits, NCLT cases under IBC, negotiated settlements, and sale of NPAs. Amendments have strengthened SARFAESI, including CERSAI registration, RBI oversight of asset reconstruction companies, and wider investor participation in security receipts. Public sector banks have also created specialised stressed asset verticals, while business correspondents and feet-on-street models have improved recovery efforts.
Last Modified: April 28, 2026