GNPA of Banks Falls: Historic Low in India

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

• 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.

Gross and Net NPAs

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.

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