Gross NPAs Drop to Multi-Decade Low of 2.1%, Shows RBI Data

India’s banking sector has achieved a major milestone in asset quality improvement with non-performing assets (NPAs) declining to multi-decade lows. According to the latest data released by the Reserve Bank of India, the gross NPA (GNPA) ratio of scheduled commercial banks fell to 2.1 per cent by September 30, 2025, while net NPAs declined to just 0.5 per cent.

This improvement reflects sustained recoveries, prudent lending practices and stronger capital buffers across the banking system.

Key Findings from RBI’s Report

The improvement in asset quality has been highlighted in the RBI’s annual Trends and Progress of Banking in India report. Key data points include,

• Gross NPA ratio declined to 2.1% as of September 30, 2025
• Net NPA ratio fell to 0.5% by the end of March 2025
• Around 42.8% of the reduction in GNPAs during 2024–25 came from recoveries and upgradations
• Higher provisioning by banks also contributed to lower net NPAs

The RBI noted that banks are now better positioned to absorb credit shocks due to stronger balance sheets.

Slippage Ratio Continues to Decline

Another positive indicator is the slippage ratio, which measures new NPAs as a proportion of standard advances at the beginning of the year. The report showed,

• Slippage ratio declined for the fifth consecutive year
• It stood at 1.4% at the end of March 2025
• Both public-sector banks and private sector banks recorded a decline in fresh slippages, although the ratio remained relatively higher for private sector lenders.

Drivers of Improved Asset Quality

Several factors have contributed to the sustained improvement in NPAs,

• Aggressive recovery and resolution mechanisms
• Loan upgrades due to better borrower performance
• Improved credit underwriting standards
• Strong economic recovery supporting repayment capacity
• Higher provisioning and capital adequacy
• Together, these measures have reduced stress in bank balance sheets.

About NPAs and Slippage Ratio

• A Non Performing Asset (NPA) is a loan or advance for which principal or interest remains overdue for more than 90 days.
• Defined and regulated by the Reserve Bank of India (RBI).
• High NPAs weaken banks balance sheets, reduce lending capacity and pose risks to financial stability.
• Over the past decade, India’s banking system had grappled with elevated NPAs, especially after the credit boom of the early 2010s.
• The recent decline marks a structural turnaround in the health of banks.
• Slippage ratio measures the rate at which standard (good) loans turn into stressed assets or NPAs during a given period.

Key Takeaways

• Gross NPAs fell to 2.1% by September 2025.
• Net NPAs declined to 0.5%, reflecting strong provisioning.
• Nearly 43% of GNPA reduction came from recoveries and upgrades.
• Slippage ratio declined for the fifth straight year.
• RBI data signals robust health of India’s banking sector.

Question

Q. Which RBI publication highlighted the decline in NPAs?

A) Financial Stability Report
B) Monetary Policy Report
C) Trends and Progress of Banking in India
D) Banking Ombudsman Report