The Finance Ministry has informed that Gross Non-Performing Assets (GNPA) of Scheduled Commercial Banks (SCBs) declined to a historic low as of September 30, 2025, lower than the level seen in 2010–11.
Trends in Gross NPAs
- Historic Decline: The GNPA ratio of SCBs has fallen to 2.15%, representing the lowest level in over a decade.
- Public Sector Banks: PSBs reported a GNPA ratio of 2.50%, with a sharper decline since March 2018 compared to other bank groups.
- Private Sector Banks: Private banks recorded a lower GNPA ratio of 1.73%, indicating stronger asset quality.
- Foreign Banks: Foreign banks reported the lowest GNPA ratio at 0.80%
- Decline in Fresh NPAs: The slippage ratio, measuring fresh accretion of NPAs, has improved consistently over the last six years
| Peak Comparison: India’s GNPA ratio had earlier peaked at around 11.2% in FY18, highlighting the scale of turnaround. |
- Improved Asset Quality and Underwriting:
- Strengthened Underwriting Standards: The decline in NPAs indicates better credit appraisal and underwriting practices, especially in PSBs.
- Resilient Balance Sheets: Sustained profitability has supported stronger capital positions and resilience in public sector banks
- Policy and Regulatory Measures: The decline was supported by the government’s 4R approach, comprising
- Recognition of NPAs transparently
- Resolution and Recovery through effective legal mechanisms
- Recapitalisation of PSBs
- Reforms in banking and the broader financial ecosystem
Impact on Bank Performance
- Reduced Provisioning Burden: Declining NPAs leads to lower provisioning requirements, freeing capital for productive lending.
- Improved Profitability: Reduced stress will enhance bank profitability, strengthening balance sheets.
- Positive Credit Growth: Improved asset quality has a positive impact on business growth and lending capacity.
About Non-Performing Assets (NPAs)
- Definition: A Non-Performing Asset (NPA) is a loan or advance in which interest and/or principal remains overdue for more than 90 days, as per RBI norms.
- Asset Classification: Loans are treated as assets by banks because interest income from lending is a primary source of revenue.
- When borrowers, individuals or corporates fail to service interest or principal, the loan stops generating income.
- RBI classifies bank advances into Standard Assets (Performing loans), Substandard Assets, Doubtful Assets, and Loss Assets.
- Classification of NPAs (RBI Guidelines):
- Substandard Assets: Assets that have remained NPAs for a period up to 12 months.
- Doubtful Assets: Assets that have remained in the substandard category for more than 12 months, indicating a higher risk of non-recovery.
- Loss Assets: Assets identified as uncollectible or of negligible value, where continuation as a bankable asset is not justified, even though some recovery may still be possible.
Early Stress Recognition (Pre-NPA Stages)
- Before becoming an NPA, loans may be classified as Special Mention Accounts (SMA):
- SMA-0: Overdue up to 30 days
- SMA-1: Overdue 31–60 days
- SMA-2: Overdue 61–90 days
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Gross and Net NPAs
| Gross NPA |
Net NPA |
| GNPA represents the total value of NPAs on the bank’s books at a given point in time (quarter or financial year). |
NNPA is calculated by subtracting provisions made by the bank from gross NPAs, reflecting the actual burden of bad loans |
| The GNPA Ratio measures gross NPAs as a percentage of total advances, indicating the overall stress in the loan portfolio |
The NNPA Ratio measures net NPAs as a percentage of total advances, showing the bank’s effective exposure after provisioning. |
NPA Provisioning
- Provisioning refers to the portion of loan value that banks set aside from profits to cover potential losses.
- Standard Provisioning Norms: For standard assets, provisioning typically ranges between 5% and 20%, depending on the sector and borrower risk profile
- In case of NPAs, banks are required to make up to 100% provisioning, in line with Basel III norms, to safeguard financial stability
Steps Taken to Reduce NPAs
- Debt Recovery Tribunals (DRTs): Established under the Recovery of Debts and Bankruptcy Act, 1993, provide a mechanism for speedy adjudication and recovery of bank dues.
- SARFAESI Act, 2002: The SARFAESI Act empowers secured creditors to take possession of collateral assets in case of loan repayment default without court intervention.
- Key amendments in SARFAESI Act, empowered RBI:
- To audit and inspect Asset Reconstruction Companies (ARCs) and to impose penalties for non-compliance
- Mandated registration of all security interests with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)
- Indradhanush Plan for Public Sector Banks: The Indradhanush framework was launched to strengthen Public Sector Banks through capital infusion, governance reforms, and operational restructuring.
- RBI’s Asset Quality Review (2015): The AQR initiated by RBI exposed hidden stress in bank balance sheets, enabling transparent recognition of NPAs.
- Insolvency and Bankruptcy Code (IBC), 2016: The IBC, 2016 enables time-bound insolvency resolution of corporate entities, partnership firms, and individuals, typically within 180 days, extendable by 90 days.
- As of March 2025, over 30,000 cases involving ₹13.78 lakh crore were settled at the pre-admission stage.
- Prudential Resolution Framework (2019): RBI introduced a time-bound framework incentivising early resolution of stressed assets
- National Asset Reconstruction Company Limited (NARCL): The NARCL was created to absorb stressed assets from banks, thereby improving the stability and efficiency of the financial system.
About Loan Write-off
- A loan write-off is an accounting tool used by banks to remove bad loans from their balance sheets.
- If repayment defaults continue for three consecutive quarters, the loan may be written off.
- Writing off does not mean loan waiver. Banks still retain the right to recover dues.
- Tax Benefits: Banks become eligible for tax deductions on written-off loan amounts.
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12 Feb 2026
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