Gross non-performing assets (NPAs) of public sector banks have declined significantly over the past five financial years, falling from ₹6,16,616 crore in March 2021 to ₹2,83,650 crore in March 2025—reducing the gross NPA ratio from 9.11 percent to 2.58 percent. This trend reflects coordinated structural and institutional reforms by the Government of India and the Reserve Bank of India (RBI) aimed at streamlining asset resolution and improving banking sector health.
Key measures include the transformative effect of the Insolvency and Bankruptcy Code (IBC), which has altered the creditor-borrower relationship by removing control of defaulting companies from their promoters and barring wilful defaulters from the resolution process. The IBC has also expanded its scope to include personal guarantors of corporate debtors.
Complementary legislative amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debt and Bankruptcy Act have enhanced their effectiveness. To concentrate on high-value recoveries, the pecuniary jurisdiction of Debt Recovery Tribunals (DRTs) has been raised from ₹10 lakh to ₹20 lakh.
Public sector banks have set up specialized stressed asset management verticals and branches, enabling more focused follow-up and monitoring of NPAs. Adoption of business correspondents and the feet-on-street model has further accelerated recoveries. RBI’s Prudential Framework encourages early recognition, reporting and resolution of stressed assets, offering incentives for prompt adoption of resolution plans.
RBI mandates banks to value fixed assets through professionally qualified independent valuers prior to loan sanction and property sales under the SARFAESI Act. Properties valued at ₹50 crore and above require two independent valuation reports, ensuring transparency and price discovery via e-auctions. Collateral tied to NPAs must be revalued every three years, with Joint Lenders Forum guidelines empowering banks to investigate and report overstated valuations.
These efforts have institutionalized risk management, enhanced operational transparency, and reinforced creditor rights, collectively driving a sustained decline in NPAs. The successful integration of reform measures and asset recovery frameworks highlights India’s commitment to financial stability and responsible lending.
