PSBs’ Gross NPA Ratio Falls from 9.11 % in FY21 to 2.58 % in FY25 and Asset Quality Strengthens.
Banking & Finance
According to recent Reserve Bank of India (RBI) provisional data, Public Sector Banks’ (PSBs) Gross Non-Performing Asset (GNPA) ratio has dramatically declined from 9.11 % (₹6.16 lakh crore) in FY 21 to 2.58 % (₹2.83 lakh crore) in FY 25. This improvement reflects robust recovery, regulatory reforms, and sustained reduction in stressed assets.
- The steep decline in GNPAs over recent years results from persistent recovery efforts. The implementation of the Insolvency and Bankruptcy Code (IBC) led to efficient resolution of NPAs and kept wilful defaulters out of the resolution process. Stricter identification of stress helped limit fresh slippages in retail and corporate segments.
- PSBs wrote off approximately ₹58,000 crore worth of bad loans in FY 25—part of a strategy to clean up balance sheets. This aggressive write-off policy reduces stale NPAs and improves the asset quality ratio, but also indicates ongoing challenges in loan recovery and fraud prevention.
- The RBI’s Financial Stability Report highlighted that scheduled commercial banks are well-capitalized, with common equity Tier‑1 (CET‑1) and Capital to Risk-weighted Assets Ratio (CRAR) comfortably above regulatory thresholds. However, under severe stress scenarios, PSBs GNPA could rise to 4.1 % by March 2025, showing potential vulnerability.
Main Point :- (i) GNPA ratios across different loan categories have converged; retail loans saw the lowest stress levels, while agriculture and industrial sectors registered higher NPAs. Notably, retail GNPA was around 1.2 % (Sept 2024), compared to agriculture at 6.2 %. This trend reflects cautious lending and effective credit delivery.
(ii) Starting in 2015, the Government of India rolled out the 4R framework—Recognition, Resolution, Recapitalization, and Reforms—to tackle bad loans. Post Asset Quality Review (AQR) under the RBI, systemic recognition of NPAs and recapitalization measures significantly strengthened PSB balance sheets. CRAR rose from 11.45 % (March 2015) to 15.43 % (Sept 2024).
(iii) Improved asset quality translated into record profits—PSBs reported aggregate net profits of ₹1.41 lakh crore in FY 24—one of the strongest showings ever. Enhanced ADS (advances‑to‑deposits), better provisioning buffers, and continued rollout of welfare schemes like Atal Pension Yojana and PM Jeevan Jyoti Bima Yojana highlight a stronger, inclusive banking sector.
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