India’s banking system has reached its healthiest position in over a decade, with gross non-performing assets (NPAs) of Scheduled Commercial Banks (SCBs) declining to a historic low of 2.15% as of September 2025, according to provisional government data. The ratio is now below levels seen in 2010–11, marking a decisive turnaround after years of balance-sheet stress.

AQR and 4Rs strategy drive balance-sheet reset

The sustained improvement follows a series of structural interventions triggered by the Reserve Bank of India’s Asset Quality Review (AQR) in 2015. In its aftermath, the government implemented the 4Rs strategy—recognition, resolution, recapitalisation and reforms—aimed at transparently identifying stressed assets, accelerating recoveries and strengthening bank governance.

Public sector banks narrow the gap

As of September 30, 2025, 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. While private and foreign lenders continue to report lower absolute NPAs, PSBs have achieved a sharper reduction since March 2018, reflecting the impact of focused reforms, capital support and operational restructuring.

Lower slippages signal better underwriting

Fresh stress formation has also moderated. The slippage ratio for PSBs improved to 0.8% in September 2025, compared with 1.8% for private sector banks, indicating stronger underwriting standards and more effective early stress detection. Automated Early Warning Systems and specialised stressed-asset management units have played a key role in curbing new NPAs.

IBC and recovery mechanisms reshape credit culture

Structural reforms such as the Insolvency and Bankruptcy Code (IBC) and amendments to the SARFAESI Act have reinforced a creditor-driven credit framework. As of March 2025, over 30,000 cases involving defaults of ₹13.78 lakh crore were settled at the pre-admission stage under the IBC, highlighting its deterrent effect on wilful defaults.

Profitability and credit growth get a boost

The steady decline in NPAs has reduced provisioning pressures, supporting stronger profitability and balance sheets across banks. This improvement is enhancing lenders’ capacity to expand credit, providing a more stable foundation for sustained economic growth.

The data was shared by Minister of State for Finance Pankaj Chaudhary in a written reply to the Lok Sabha.