The latest data released regarding India’s banking sector has presented a relief picture for the economy. The new report of the Reserve Bank of India (RBI) shows that Indian banks are now in a stronger position than before. There is a continuous improvement in the balance sheet of the banking system and the biggest relief is that the bad loans have come down to the lowest level in decades. This improvement directly means that common people and corporate companies are repaying their loans on time, due to which the financial pressure on banks has reduced significantly.
Gross NPA to reduce to 2.1 percent by September 2025, clear signs of historic reform in the banking system.
Banks have performed brilliantly on the front of bad loans i.e. NPA (Non-Performing Assets). Data from RBI’s ‘Trend and Progress of Banking’ report shows that by September 2025, the gross NPA ratio of banks has come down to just 2.1 percent. Earlier in March 2025, this figure was 2.2 percent. If you understand in simple language, now out of every Rs 100 loan disbursed by banks, only about Rs 2 are at risk of getting stuck or sinking. This decline is the best performance in Indian banking history in the last several decades, which shows the strength of the system.
Recovery of home and education loans is excellent, but concerns still remain on consumer durables like TV-fridge.
The asset quality of different types of loans has also been analyzed in the report. In this, a lot of improvement has been seen in retail loan segments like housing loan, education loan and credit card, that is, people in these sectors are paying the installments honestly. However, tension still remains in some specific areas. For example, the proportion of bad loans in loans taken for purchase of consumer durables (such as TVs, refrigerators, washing machines and other electronic goods) is still high. Whereas, if we talk about the industrial sector, the maximum problem of default or delay has been seen in the loans of companies manufacturing leather and leather products.
The impact of strictness on personal loans and credit cards was visible, banks took the most caution till date in distributing small loans.
In the last two years, banks and RBI have exercised great caution regarding unsecured loans (loans without guarantee). Expenses through small personal loans and credit cards were increasing very rapidly, in view of which RBI had tightened the rules at the end of the year 2023. The report shows that this strictness has had a positive effect and the pace of risky loans has been controlled. Now that the situation is under control and asset quality is improving, the Central Bank has also partially relaxed some rules, so that balance is maintained in the market.
Deposits and loans continue to increase, banks are in a better position than regulatory requirements with strong capital base.
The business of banks has also registered an increase during the financial year 2024-25. According to the report, both deposits (deposits) and loans (loan distribution) of banks have increased, although the pace was a little slower than last year. Apart from this, due to low interest margin, the profit growth rate of banks has also decreased slightly. Despite this, what is satisfactory is that all the banks stand on a strong capital base and their liquidity (cash availability) position is much better than the regulatory requirements, which gives them the ability to absorb any economic shock.
Climate change can become a big financial threat in future, RBI is preparing a new information system to identify the risk.
The latest report also warns about future challenges. RBI has warned that climate change may prove to be a major threat to financial stability in the times to come. Changes in weather and natural disasters can have a direct impact on economic activities and loan recovery. With this in mind, the Central Bank is developing a new and advanced information system so that climate-related financial risks can be identified in a timely manner. RBI has clarified that climate finance is not just a policy issue, but a national responsibility in which everyone’s participation is necessary.
