India’s banking and financial system is showing its strongest fundamentals in decades. The Economic Survey 2025-26, tabled in Parliament, paints a picture of healthier banks, faster NPA recovery, expanding credit to MSMEs, rising rural profitability, and deeper financial inclusion. Together, these trends signal a structural strengthening of India’s financial ecosystem.
Sharp Improvement in Asset Quality of Banks
- India’s Scheduled Commercial Banks (SCBs) have witnessed a major turnaround in asset quality.
- Both Gross NPA (GNPA) and Net NPA ratios have fallen to multi-decadal and record-low levels.
- At the same time, banks remain well-capitalised, with the Capital to Risk-Weighted Assets Ratio (CRAR) standing at a healthy 17.2% as of September 2025.
- Most notably, the recovery rate in NPAs has nearly doubled, rising from 13.2% in FY18 to 26.2% in FY25, reflecting stronger credit discipline and more effective resolution mechanisms.
IBC Delivers Better Recovery Outcomes
- The Insolvency and Bankruptcy Code has emerged as a cornerstone of banking reform.
- From around 1,300 resolved cases, creditors recovered ₹3.99 lakh crore, amounting to 94% of the fair value of resolved businesses and 170% of liquidation value.
- The IBC has replaced fragmented earlier laws with a unified framework, improving predictability and timelines. Resolution periods have fallen from 6–8 years to about 2 years.
- Reflecting this success, S&P Global Ratings upgraded India’s insolvency regime from Group C to Group B in December 2025.
Regional Rural Banks Post Record Profits
- The financial health of Regional Rural Banks (RRBs) has improved sharply following consolidation and technology integration.
- Under the One-State-One-RRB policy, their number was reduced from 196 to 28 by May 2025.
- As a result, RRBs achieved a record consolidated net profit of ₹7.6 thousand crore in FY24, followed by the second-highest profit of ₹6.8 thousand crore in FY25.
- Importantly, RRBs have consistently exceeded the 75% priority sector lending target, reaffirming their role in rural and agricultural credit delivery.
Microfinance Sector Shows Sustained Growth
- India’s microfinance sector continues to expand its reach among underserved communities.
- Active borrowers nearly doubled from 330 lakh in FY14 to 627 lakh in FY25, while the gross loan portfolio increased sevenfold to ₹2.38 lakh crore.
- The sector remains strongly inclusive, with 95% women borrowers and 80% rural clients.
- Branch networks expanded from 11,687 to 37,380, strengthening last-mile credit delivery. Going forward, responsible lending and robust credit assessment will be key to managing cyclical risks.
Question
Q. As per Economic Survey 2025–26, the recovery rate in NPAs of SCBs in FY25 was approximately:
A. 13%
B. 18%
C. 26%
D. 40%
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