The Reserve Bank of India (RBI) has announced a landmark improvement in the banking sector's health, with gross non-performing assets (GNPAs) dropping to their lowest level in multiple decades. According to a report released on Monday, December 29, 2025, the gross NPA ratio for scheduled commercial banks stood at 2.1 per cent as of the end of September 2025. This marks a consistent decline from 2.2 per cent at the end of March 2025 and 2.7 per cent a year earlier in March 2024.
Steady Decline in Bad Loans Across Bank Groups
The RBI's report highlights a sustained positive trend in asset quality since the 2018-19 period. In absolute monetary terms, the gross NPAs of banks reduced to Rs 4.32 lakh crore in the 2024-25 financial year, down significantly from Rs 4.81 lakh crore in 2023-24. The improvement was broad-based across most bank categories.
Public sector banks (PSBs) showed remarkable progress, with their gross NPA ratio falling to 2.6 per cent from 3.5 per cent. Private sector banks (PVBs) edged lower to 1.8 per cent from 1.9 per cent, while foreign banks saw their ratio improve to 0.9 per cent from 1.2 per cent. However, the report noted a contrasting trend for small finance banks, where the asset quality ratio worsened to 3.6 per cent from 2.4 per cent.
The net NPA (NNPA) ratio remained stable at a healthy 0.5 per cent as of September 2025, unchanged from the position in March 2025.
Recoveries and Upgrades Fuel the Clean-Up
A key driver behind this multi-year cleanup has been aggressive recovery efforts and the upgrading of stressed accounts. The RBI data reveals that close to 42.8 per cent of the reduction in GNPAs during 2024-25 was directly aided by these measures.
Lenders successfully recovered a substantial Rs 67,693 crore from bad loans over the year. Additionally, they upgraded stressed accounts worth Rs 50,087 crore, moving them back to standard asset categories. This proactive management has led to a fifth consecutive annual decline in the slippage ratio—which measures new loans turning bad—to 1.4 per cent by March 2025, dipping further to 1.3 per cent by September 2025.
Improvement in Early Warning Signals and Restructured Loans
The report delves into special mention accounts (SMAs), which are early warning indicators for potential stress. It found that the ratios for SMA-0, SMA-2, and NPAs declined for both overall advances and large borrowal accounts (exposure of Rs 5 crore and above) in 2024-25. However, the SMA-1 ratio, where payments are overdue between 31-60 days, saw an increase, primarily driven by public sector banks.
Furthermore, the proportion of standard assets in total advances climbed to 97.7 per cent by March 2025, up from 97.2 per cent a year earlier. The share of large borrowal accounts remained broadly unchanged at 43.9 per cent. The report also noted a decline in the restructured standard advances ratio, with private banks maintaining a lower share of such restructured advances compared to their public sector counterparts.
This comprehensive data, published by the RBI, underscores a period of strengthened resilience for the Indian banking system, setting a robust foundation for future credit growth and economic support.
