What Happened
- The Finance Ministry announced that Gross Non-Performing Assets (GNPAs) of Scheduled Commercial Banks (SCBs) for domestic operations reached a historic low of 2.15% as of September 2025.
- This represents a continuous decline over the last eight financial years, from a peak of over 11% during the NPA crisis.
- Public sector banks' NPAs reduced from 9.11% (March 2021) to 2.58% (March 2025), demonstrating a sharper improvement than private sector banks.
- The improvement reflects the success of the government's 4R strategy and the banking sector's strengthened underwriting standards.
Static Topic Bridges
Non-Performing Assets (NPA) Framework in India
An asset is classified as Non-Performing when it ceases to generate income for the bank. Under RBI norms, a loan becomes an NPA when interest or principal payment remains overdue for more than 90 days. NPAs are further classified based on the duration of non-performance: Substandard (NPA for up to 12 months), Doubtful (NPA for more than 12 months), and Loss (identified as uncollectible by the bank or RBI). Banks must make provisions for NPAs: 15% for substandard, 25-100% for doubtful (depending on duration), and 100% for loss assets.
- NPA definition: loan overdue for 90+ days
- Classification: Substandard (0-12 months), Doubtful (12+ months), Loss
- Provisioning: 15% (substandard), 25-100% (doubtful), 100% (loss)
- Gross NPA: total NPAs before provisioning
- Net NPA: NPAs minus provisions (more relevant indicator of bank health)
- Current Gross NPA: 2.15% of gross advances (September 2025) — historic low
- Peak Gross NPA: ~11.5% (March 2018)
Connection to this news: The decline from 11.5% to 2.15% over eight years represents one of the most successful banking sector clean-ups globally, enabling banks to shift from provisioning-heavy operations to credit expansion.
Government's 4R Strategy for Banking Sector Cleanup
The 4R strategy — Recognition, Resolution, Recapitalisation, and Reforms — was the government's comprehensive approach to address the banking crisis. Recognition involved the RBI's Asset Quality Review (AQR) in 2015 that forced banks to reclassify stressed loans as NPAs. Resolution was enabled primarily through the Insolvency and Bankruptcy Code (IBC), 2016, which created a time-bound resolution framework. Recapitalisation involved infusing Rs 2.11 lakh crore into public sector banks between 2017-2022. Reforms included governance changes, merger of public sector banks (from 27 to 12), and enhanced risk management.
- Recognition: Asset Quality Review (2015) — forced transparent NPA disclosure
- Resolution: IBC enacted 2016 — 180/270-day time-bound resolution
- Recapitalisation: Rs 2.11 lakh crore infused into PSBs (2017-2022)
- Reforms: PSB mergers (27 → 12), EASE framework for governance, professional boards
- IBC recoveries: over Rs 3.5 lakh crore resolved through NCLT as of FY25
- NARCL (National Asset Reconstruction Company Ltd): established 2021 for legacy bad loans
Connection to this news: The Finance Ministry's announcement of the historic low NPA ratio validates the 4R strategy as a successful banking sector reform, with the most dramatic improvement visible in public sector banks (from 9.11% to 2.58% in four years).
Insolvency and Bankruptcy Code (IBC), 2016
The IBC, 2016, created a unified framework for resolving insolvency of companies, partnership firms, and individuals. It established the National Company Law Tribunal (NCLT) as the adjudicating authority and the Insolvency and Bankruptcy Board of India (IBBI) as the regulator. The Code introduced a strict timeline: 180 days for the Corporate Insolvency Resolution Process (CIRP), extendable by 90 days. The Committee of Creditors (CoC), comprising financial creditors, votes on resolution plans with a 66% majority threshold.
- Enacted: 2016, operational from December 2016
- Adjudicating authority: NCLT (National Company Law Tribunal)
- Regulator: IBBI (Insolvency and Bankruptcy Board of India)
- CIRP timeline: 180 days + 90 days extension (total 270 days)
- CoC voting threshold: 66% of financial creditors
- Total cases admitted to NCLT since inception: over 7,700
- Average recovery rate: approximately 32-36% of admitted claims
Connection to this news: The IBC's role as the primary resolution mechanism for stressed assets has been a key driver of the NPA decline, as it created a credible threat of resolution/liquidation that incentivised promoters to settle dues and banks to proactively manage stressed portfolios.
Key Facts & Data
- Gross NPA of SCBs: 2.15% (September 2025) — historic low
- PSB NPA trajectory: 9.11% (March 2021) → 2.58% (March 2025)
- Peak GNPA: ~11.5% (March 2018)
- PSB recapitalisation: Rs 2.11 lakh crore (2017-2022)
- PSB mergers: 27 → 12 public sector banks
- IBC enacted: 2016; CIRP timeline: 180+90 days
- IBC recoveries: over Rs 3.5 lakh crore through NCLT
- Continuous NPA decline: 8 consecutive financial years