Public Sector Banks Hit Multi-Decadal Low in Bad Loans, Economic Survey Reveals

It points out that the gross non-performing asset (GNPA) ratio and net NPA ratio have reached multi-decadal lows while the capital-to-risk-weighted-asset ratio (CRAR) of banks remained strong at 17.2 per cent (as of September 2025).

Further, the recovery rate in NPAs in banks has approximately doubled from 13.2 per cent in FY18 to 26.2 per cent in FY25. The recovery rate through the Insolvency and Bankruptcy Code, 2016 (IBC Code) has improved significantly as well, the survey observes.

The government also undertook various measures to optimise the resources and improve the performance of the regional rural banks (RRBs). During FY24, they achieved a record consolidated net profit of Rs 7,600 crore, followed by a second-highest consolidated net profit of Rs 6,800 crore during FY25.

The measures the consolidation process in four phases based on the principle of One-State-One-RRB. This reduced their number from 196 to 28 as of (May 1, 2025), it observes. Besides, the integration of the Core Banking Solution and other IT systems of the amalgamated RRBs into unified platforms has also been undertaken.

It is also noteworthy that RRBs have consistently exceeded the priority sector lending target of 75 per cent of their adjusted net bank credit over the years, underscoring their commitment to fulfilling their foundational objectives.

The measures announced in the Union Budget 2025-26, such as a significant enhancement of credit availability with guarantee cover for MSMEs, the introduction of credit cards for micro-enterprises, and others, have also been beneficial to the sector.

The revision in MSMEs classification, wherein investment limits and turnover thresholds have been substantially raised, also contributed to this high growth. The bank credit to the MSME sector continues to show momentum and remains robust, the survey states.

Major policy actions in the banking sector include the launch of the credit assessment model (CAM) based on the digital footprints for MSMEs in 2025. The Economic Survey says that between April 1 and November 30, 2025, over Rs 3.2 lakh crore MSME loan applications, amounting to more than Rs 41,500 crore, have been sanctioned by PSBs under the credit programmes of CAM.

This MSME model will leverage digitally fetched and verifiable data to enable automated loan appraisal for MSMEs, utilizing objective decisioning for all loan applications and model-based limit assessment for both existing-to-bank and new-to-bank MSME borrowers. Along with improving the ease of doing business for the MSMEs, this model also integrates the credit guarantee schemes, such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

The RBI has also initiated a significant reorganisation of its regulatory instructions, a move that signifies a transformative change in its regulatory communication. Additionally, instructions issued by NABARD to RRBs, State Cooperative Banks, and Central Cooperative Banks were also consolidated in consultation with NABARD, the survey added.

- IANS