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29 May 2026 7 views

Non-Performing Assets (NPAs) — Banking Sector Health Indicator

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theIAShub
29 May, 2026
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Non-Performing Assets (NPAs) — Banking Sector Health Indicator
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Loans or advances where principal or interest payments remain overdue for 90 days or more — a critical metric for assessing banking sector financial health.

Why in News

India's banking sector achieved a historic low Gross NPA ratio of 2.1% in September 2025, driven by the effective implementation of the Insolvency and Bankruptcy Code (IBC) over the past decade.

Key Facts

  • Definition: An asset is classified as NPA if repayment is overdue for 90 days or more.
  • Peak NPA Period: Indian banks recorded a Gross NPA ratio of 8% in 2017 — the highest in over two decades.
  • Current Status: Gross NPA ratio dropped to a historic low of 1% in September 2025. (UPSC Mains Usage: Connects to GS3 — Economy — Banking sector reforms, financial stability, credit discipline)
  • IBC Impact: The creditor-in-control model and time-bound resolution framework under IBC enabled recovery of ₹4 lakh crore from 1,419 resolved cases by March 2026.
  • Pre-Admission Deterrent: Fear of losing control prompted over 30,000 cases to settle ₹14 lakh crore before formal insolvency proceedings.
  • Recovery Rate: Average recovery under IBC stood at 6% for scheduled commercial banks in 2024–25 — significantly higher than pre-IBC recovery rates of 12–15%.
  • Asset Quality Ratio (AQR): Reserve Bank of India (RBI) introduced Asset Quality Review (2015) to identify hidden NPAs, leading to transparent reporting and subsequent IBC interventions.
  • Provisioning Requirement: Banks must maintain provisions against NPAs — 15% for substandard assets, 25% for doubtful assets (up to 1 year), rising to 100% for doubtful assets over 3 years.

Quick Revision Box

Term

Detail

NPA Definition

Loan overdue for 90 days or more

Peak Gross NPA

11.8% in 2017 (worst in two decades)

Current Gross NPA

2.1% in September 2025 (historic low)

IBC Recovery by 2026

₹4 lakh crore from 1,419 cases

Pre-Admission Settlements

30,000+ cases, ₹14 lakh crore recovered

Recovery Rate 2024–25

36.6% for scheduled commercial banks


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