Banks’ net NPAs hit record low of 0.5% in FY25 since 2018 peak

The asset quality of scheduled commercial banks has seen a dramatic recovery, with net non-performing assets (NNPAs) falling sharply to an all-time low of 0.5% by March 31, 2025, down significantly from a high of 6% recorded in FY18, according to the latest data from CareEdge Ratings.

The substantial decline in banks’ NNPAs reflects successful resolutions, improved recoveries, lower incremental slippages, and proactive write-offs. Strong implementation of the Insolvency and Bankruptcy Code (IBC), 2016, coupled with strengthened provisioning, has supported this improvement.

Overall, gross NPAs (GNPAs) also fell by 11.3% year-on-year (YoY), to ₹4.16 lakh crore as of March 2025, compared to ₹4.68 lakh crore in the previous year. Public sector banks (PSBs) significantly led this recovery, with their GNPAs declining 17.0% YoY to ₹2.94 lakh crore. Although fresh slippages in PSBs rose slightly by 7.8%, the overall stock of stressed assets has significantly reduced due to lower incremental slippage and elevated historical recoveries.

However, the situation was somewhat mixed for private sector banks, whose gross NPAs rose 5.0% YoY to ₹1.21 lakh crore, driven largely by stress in their microfinance and unsecured segments, as well as increased slippages in specific banks.

On a sequential basis, banks' gross NPAs improved by 5.6% quarter-on-quarter in Q4FY25, led by PSBs (down 6.4%), while private banks registered a decrease of 3.5%. The overall reduction reflects higher quarterly write-offs and improved recovery mechanisms.

Furthermore, restructuring under regulatory frameworks has also decreased notably, supported by effective resolution measures and improved borrower repayments, reflecting stronger economic activity. The restructured portfolios of selected PSBs and private banks declined by 23.2% and 40%, respectively, indicating overall systemic improvement in asset quality.

Despite continued pressure in select segments like microfinance and agriculture lending, especially among private banks, the broader banking sector appears significantly healthier, underpinning a sustainable improvement in asset quality since the FY18 crisis.

However, the overall RoA of banks decreased by eight bps YoY to 1.34% in Q4FY25, driven by margin pressures, elevated deposit costs despite rate cuts and stress in select segments.

PSBs’ RoA improved slightly by 2 bps YoY to 1.17% in Q4FY25 compared to 1.15% in the previous year. This improvement was driven by other PSBs, which expanded by 26 bps YoY and were supported by gains in other income and growth in advances.

But private sector banks’ RoA slipped by 25 bps YoY to 1.61% in the quarter, driven by rising slippages in the microfinance segment and margin pressures. Sequentially, private banks’ RoA decreased by 8 bps, mainly attributable to one private bank reporting negative profits in the current quarter due to their accounting discrepancies and weaker non-interest income, which declined by 11.5% sequentially for other private banks.