Public Sector Banks Record Multi-Decadal Low NPAs: Economic Survey

New Delhi- The asset quality of scheduled commercial banks has shown marked improvement, with a sharp decline in bad loans and a rise in recoveries, according to the Economic Survey 2025–26 tabled in Parliament by Finance Minister Nirmala Sitharaman on Thursday.

The Survey noted that both the gross non-performing asset (GNPA) ratio and net NPA ratio have fallen to multi-decadal lows, while banks’ capital strength remains robust. The capital-to-risk-weighted-asset ratio (CRAR) stood at a healthy 17.2 per cent as of September 2025.

It further highlighted that the recovery rate of NPAs has nearly doubled—from 13.2 per cent in FY18 to 26.2 per cent in FY25. Recoveries under the Insolvency and Bankruptcy Code (IBC), 2016 have also improved significantly.

The Economic Survey pointed to several government initiatives aimed at strengthening regional rural banks (RRBs). In FY24, RRBs posted a record consolidated net profit of Rs 7,600 crore, followed by the second-highest profit of Rs 6,800 crore in FY25.

A key reform was the consolidation of RRBs in four phases under the ‘One-State-One-RRB’ principle, reducing their number from 196 to 28 as of May 1, 2025. Integration of core banking and other IT systems into unified platforms for amalgamated RRBs has also been completed.

The Survey noted that RRBs have consistently exceeded the priority sector lending target of 75 per cent of adjusted net bank credit, reinforcing their role in supporting agriculture, MSMEs, and rural development.

Measures announced in the Union Budget 2025–26—such as enhanced credit guarantees for MSMEs, the introduction of credit cards for micro-enterprises, and other credit support initiatives—have further boosted the sector. The revised MSME classification, with higher investment and turnover limits, has also contributed to stronger growth, with bank credit to MSMEs remaining robust.

Among major policy initiatives, the Survey highlighted the launch of the Credit Assessment Model (CAM) in 2025, which uses digital footprints to assess MSME creditworthiness. Between April 1 and November 30, 2025, public sector banks sanctioned over Rs 41,500 crore against MSME loan applications exceeding Rs 3.2 lakh crore under CAM-based credit programmes.

The model enables automated loan appraisal using digitally verified data, objective decision-making, and model-based credit limits for both existing and new MSME borrowers. It also integrates credit guarantee schemes such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), improving ease of doing business.

The Survey also noted that the Reserve Bank of India has undertaken a major reorganisation of its regulatory instructions, marking a significant shift in regulatory communication. In addition, instructions issued by NABARD to RRBs, State Cooperative Banks, and Central Cooperative Banks have been consolidated in consultation with the regulator.

With inputs from IANS