India’s Banking Sector Hits 20-Year NPA Low

India’s banking sector has reached its most stable phase in 20 years, with major improvements in credit quality.

• • Gross NPAs dropped sharply to 2.31% by March 2025, the lowest in two decades (down from a high of 11.46% in 2018).
• • Net NPAs also decreased significantly, reflecting better provisioning and stricter risk management.
• • Public Sector Banks (PSBs) have shown strong progress, reducing their GNPA levels from 9.11% in 2021 to 2.58% in 2025

Profitability Records Strong Growth

• • Banking profits have surged, marking the sixth consecutive year of profitability growth.
• • PSBs saw profits rise from ₹1.05 lakh crore in FY 2022–23 to ₹1.78 lakh crore in FY 2024–25.
• • Scheduled Commercial Banks (SCBs) collectively reported their highest ever earnings — ₹4.01 lakh crore in FY 2024–25, with another ₹1.02 lakh crore in just the first quarter of FY26.
• • Key performance ratios such as Return on Assets (RoA) at 1.37% and Return on Equity (RoE) at 14.1% show strengthened profitability.

Growth in Banking Activity and Capital Strength

• • Domestic bank deposits nearly tripled over the past decade, from ₹88.35 lakh crore in 2015 to ₹231.90 lakh crore in 2025
• • Similarly, credit growth surged, with advances climbing from ₹66.91 lakh crore to ₹181.34 lakh crore in the same period.
• • Banks’ capital buffers also strengthened, with Capital to Risk-Weighted Assets Ratio (CRAR) improving from 12.94% in 2015 to 17.36% in 2025 and higher CET-1 ratios.

Reforms and Future Focus

• • Officials attributed the sector’s turnaround to a decade of structural reforms, including the Asset Quality Review, the Insolvency and Bankruptcy Code, consolidation of PSBs, and stronger recovery laws.
• • The proposed Expected Credit Loss (ECL) framework by RBI (2025) is expected to modernize risk assessment further.
• • With stronger balance sheets, banks are now focusing on deeper deposit mobilization, expanded lending, green financing, and wider financial inclusion.

Source: PIB