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Key Points

Banks have seen a sharp improvement in asset quality, with gross NPAs falling significantly year-on-year. The net NPA ratio has stabilized at its lowest level since the asset quality review period. This turnaround is credited to large write-offs, sustained recoveries, and resolutions under the IBC. However, the report notes some emerging stress in unsecured retail loans.

Key Points: Bank Bad Loans Drop 9.5% as Asset Quality Hits Post-AQR Low

  • Gross NPA ratio improved to 2.3% from 2.7% a year ago
  • Net NPA ratio stable at 0.5%, lowest post-AQR level
  • Stress seen in unsecured loans and microfinance segments
  • Public sector banks showed decline in GNPAs across most segments
2 min read

Banks bad loans decline sharply 9.5% y-o-y in Q1FY26, asset quality improves: Care Edge Report

Care Edge reports gross NPAs fell to 2.3% in Q1FY26, the lowest level since the asset quality review, driven by write-offs and IBC resolutions.

"GNPA reduced by 9.5 per cent year-on-year to Rs 4.18 lakh crore - Care Edge Ratings"

New Delhi, August 22

The gross non-performing assets (NPAs) of banks fell sharply in the first quarter of FY26, reflecting an improvement in overall asset quality, according to a report by Care Edge Ratings.

The report said that the gross NPA (GNPA) ratio also showed an improvement, falling to 2.3 per cent in Q1FY26 compared to 2.7 per cent a year ago.

It said "GNPA reduced by 9.5 per cent year-on-year (y-o-y) to Rs 4.18 lakh crore as of Q1FY26".

On the other hand, the net non-performing asset (NNPA) ratio remained stable at 0.5 per cent in Q1FY26 for the second consecutive quarter, against 0.6 per cent over a year ago. In absolute terms, NNPAs reduced by 8.7 per cent y-o-y to Rs 0.92 lakh crore as of the quarter.

However, sequentially, the picture was slightly different. The report pointed out that the quantum of GNPAs of SCBs rose by 0.5 per cent quarter-on-quarter (q-o-q), mainly due to higher incremental slippages and stress seen in the microfinance and unsecured loan segments at some banks.

Similarly, NNPAs also rose by 2.5 per cent q-o-q.

Looking at sectoral data, public sector banks (PSBs) showed a decline in GNPAs across all segments except agriculture.

The improvement was attributed to better asset quality, upgradation efforts, and stricter norms on retail lending. Within retail loans, stress was seen particularly in unsecured loans, education loans, and credit card receivables.

The report also highlighted the structural improvement in the banking sector's asset quality over the years. As of March 31, 2018, the NNPA ratio was as high as 6 per cent.

This has now fallen significantly to 0.5 per cent in Q1FY26, the lowest in the post-asset quality review (AQR) period, and has remained stable for the past two quarters.

According to the report, this turnaround has been driven by a combination of large-scale write-offs, sustained recoveries from old NPAs, higher provision coverage, and earlier resolutions under the Insolvency and Bankruptcy Code (IBC) 2016 framework.

While the overall asset quality remains strong, the report cautioned that the pace of fresh recoveries has slowed in recent quarters, as the pool of older stressed assets has already diminished.

- ANI

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Reader Comments

P
Priya S
Good to see PSBs performing better, but the sequential rise in NPAs is concerning. Banks need to be careful with unsecured loans - too many young people are getting into credit card debt they can't handle.
Michael C
As someone working in finance, these numbers are impressive. The sustained recovery efforts and write-offs have clearly paid off. Hope this stability continues through the fiscal year.
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Ananya R
While the overall trend is positive, the microfinance segment stress worries me. Many small borrowers in rural areas depend on these loans. Banks should support them better rather than tightening norms too much.
V
Vikram M
Finally some good news about our banks! This improvement should lead to better lending rates and more credit flow to businesses. The economy needs this boost 💪
S
Sarah B
The caution about slowing recoveries is important. Banks shouldn't become complacent - they need to maintain strict monitoring, especially with the rise in digital lending and new fintech partnerships.

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