Indian Banks Complete a Decade-Long Clean-Up as Bad Loans Hit Historic Lows
Indian banks' bad loans decline to decades-low levels, with GNPA at 2.2% & NNPA at 0.5% as of Sep 2025, indicating a more resilient banking system post clean-up.
Indian banks appear to have turned a decisive corner in their long struggle with bad loans. Data from the Economic Survey 2025–26 shows that both Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) have fallen to their lowest levels in decades, marking the end of a turbulent credit cycle that dominated much of the past ten years.
The graph tracking asset quality from March 2015 to September 2025 clearly captures this transformation. In the years leading up to 2018, the banking system faced a sharp deterioration. GNPA rose from about 4–5% in 2015 to a peak of 11.2% in March 2018, as banks were forced to acknowledge stress that had built up across infrastructure, power, steel, and telecom projects. This period coincided with regulatory efforts to curb loan restructuring and end the practice of rolling over stressed assets.
Net NPAs also climbed during this phase, reaching nearly 6.0%, indicating that, even after provisioning, banks remained with substantial uncovered risk. The surge reflected the depth of the problem and the strain it placed on bank balance sheets and capital.
From 2019 onwards, however, the trend begins to reverse. Both GNPA and NNPA decline steadily year after year, pointing to a sustained clean-up rather than a one-off correction. Recoveries under the Insolvency and Bankruptcy Code, higher write-offs, improved provisioning norms, and more cautious lending standards collectively contributed to the turnaround. Importantly, the decline is gradual, underscoring a structural shift in how banks recognise and manage credit risk.
By March 2023, gross NPAs had fallen to around 4%, while net NPAs dropped below 1%. The widening gap between the two measures during this period reflects stronger provisioning coverage, reducing the system’s vulnerability to shocks. It also signals improved capital buffers and closer supervisory oversight.
The improvement continues through 2025. By September, GNPA stands at approximately 2.2%, while NNPA has declined further to about 0.5%. These are multi-year lows and point to a banking system that has largely repaired its balance sheets. Low net NPAs suggest that residual stress is limited and largely absorbed through provisions.
Taken together, the data tells the story of a full credit cycle, from excess and delayed recognition to correction and consolidation. While challenges remain, especially as credit growth accelerates, the current numbers indicate a more resilient and disciplined banking system than at any point in recent memory.
(The writer is Head-Strategic Alliances, Urban Money and a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company. He writes about financial policy, digital services, and public infrastructure in India.)