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Key Points

Indian banks have significantly improved asset quality in FY25, with gross NPAs hitting a multi-year low of 2.3%. The shift from corporate to retail lending has played a key role, though unsecured loans show signs of stress. Public sector banks remain resilient with strong provision buffers, while private banks maintain lower NPAs. Analysts warn of potential risks from rising interest rates and global economic pressures.

Key Points: Indian Banks Show Strong Asset Quality in FY25 With Lowest NPAs in Years

  • GNPA ratio drops to 2.3% in FY25, lowest in years
  • Retail lending now 34% of advances vs 19% in 2015
  • Industrial NPAs fall sharply from 22.8% to 2.7%
  • Emerging stress in unsecured loans may raise slippages
2 min read

Asset quality of banks remained strong in FY25: Report

Indian banks report lowest NPAs in years with GNPA at 2.3%, driven by recoveries and retail lending shift, though unsecured loans pose risks.

"Net additions to NPAs have remained broadly low, enabling steady reduction in headline asset quality numbers. - Sanjay Agarwal, CareEdge Ratings"

New Delhi, June 13

Indian banks have shown significant improvement in asset quality during FY25, driven by low net additions to non-performing assets (NPAs), a new report said on Friday.

This trend has helped banks strengthen their balance sheets, while credit costs have continued to decline, boosting overall profitability, according to data compiled by CareEdge Ratings.

The report noted that the Gross NPA (GNPA) ratio for scheduled commercial banks (SCBs) touched 2.3 per cent by the end of FY25 -- one of the lowest levels in recent years.

This improvement has been supported by steady recoveries, high write-offs, and reduced slippages.

Over the past decade, banks have shifted focus from large corporate loans to retail lending, which now accounts for 34 per cent of total advances, compared to just 19 per cent in 2015.

The decline in industrial sector NPAs has been particularly notable, dropping from 22.8 per cent in March 2018 to just 2.7 per cent in December 2024.

Even in agriculture, GNPA reduced to 6.2 per cent in the same period. Retail sector NPAs remained low at 1.2 per cent in December 2024, though emerging stress in unsecured personal loans and credit card dues has been highlighted as a concern.

Sanjay Agarwal, Senior Director at CareEdge Ratings, said: "Net additions to NPAs have remained broadly low, enabling the sector to witness a steady reduction in headline asset quality numbers."

"However, with the personal loans segment facing stress, fresh slippages are expected to rise, and recoveries may taper gradually," he added.

Agarwal also warned of downside risks such as elevated interest rates, regulatory changes, and global headwinds like tariff hikes, which could put additional pressure on asset quality.

Public sector banks (PSBs), in particular, are well-prepared to absorb any shocks, holding strong provision coverage ratios between 75 per cent and 80 per cent.

Private sector banks, while having lower NPAs overall, also maintain solid buffers.

Credit costs have declined from 0.86 per cent in FY22 to 0.41 per cent in FY25, reflecting reduced provisioning needs and better recoveries.

However, the report suggests that credit costs may have bottomed out and could inch up in FY26 due to stress in short-tenure retail loans.

- IANS

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Reader Comments

R
Rahul K.
This is excellent news for our banking sector! After the NPA crisis years ago, it's good to see such strong recovery. Hope RBI keeps monitoring the personal loans segment carefully though. Jai Hind! 🇮🇳
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Priya M.
As someone whose family business took loans during COVID, I can say banks have become much more professional in handling accounts. The shift to retail lending shows they're adapting to new India's needs.
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Amit S.
While numbers look good, I'm concerned about the warning signs in personal loans. Too many young people are taking multiple credit cards and BNPL loans without understanding consequences. Banks should be more responsible in lending.
S
Sunita R.
The agriculture NPA reduction from 9%+ to 6.2% is remarkable! Shows government schemes like Kisan Credit Card are working. But monsoon patterns are changing - banks must keep this in mind for future lending policies.
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Vikram J.
PSBs deserve credit for this turnaround. Remember how everyone was writing them off? Now with 75-80% provision coverage, they're stronger than many private banks. Shows what good governance can achieve.
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Neha P.
The report is positive but let's not celebrate too soon. Global headwinds mentioned could impact our exports sector, which might lead to new NPAs. Banks should prepare contingency plans now itself.

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