RBI Drives PSB NPA Reduction to 2.58% in 2025 from 9.11% in 2021

Over the past five financial years, public sector banks (PSBs) have witnessed a steady and substantial decline in their gross non-performing assets (NPAs), both in absolute terms and as a percentage of total advances. As of March 31, 2021, the gross NPAs stood at ₹6.16 lakh crore, accounting for 9.11% of total loans.

This figure dropped to ₹5.41 lakh crore (7.28%) by March 2022, and further to ₹4.28 lakh crore (4.97%) by March 2023. The downward trend continued in subsequent years, with gross NPAs reducing to ₹3.40 lakh crore (3.47%) as of March 2024 and finally to ₹2.84 lakh crore, representing just 2.58% of total loans, by March 2025.

Government and RBI Interventions Driving NPA Reduction

To address the issue of stressed assets and improve financial discipline, a series of comprehensive measures have been implemented by the Government of India and the Reserve Bank of India (RBI).

Strengthening the Legal Framework

• Insolvency and Bankruptcy Code (IBC): A transformative reform, the IBC has redefined the borrower-creditor dynamics by transferring control of defaulting companies from promoters to resolution professionals. It also disqualifies wilful defaulters from participating in the resolution process. Personal guarantors of corporate debtors have also been brought under its ambit.
• SARFAESI and RDDBFI Acts: Amendments to these Acts have enhanced their effectiveness in recovery processes.
• Increased DRT Jurisdiction: The pecuniary jurisdiction of Debt Recovery Tribunals (DRTs) was raised from ₹10 lakh to ₹20 lakh, allowing focus on higher-value cases and improving recovery efficiency.

Focused Recovery Mechanisms in Banks

• Specialised Units: Public sector banks have established dedicated verticals and branches to monitor stressed assets, ensuring quicker resolution and follow-up.
• On-ground Recovery: Deployment of Business Correspondents and the “Feet-on-Street” model has accelerated the pace of recoveries, especially in geographically dispersed or rural areas.

RBI’s Prudential Framework

RBI introduced a comprehensive Prudential Framework for Resolution of Stressed Assets that emphasizes early identification, reporting, and resolution. The framework incentivizes lenders for timely resolution, helping reduce slippages and improve asset quality.

Valuation and Disposal of Stressed Assets

Standardised Valuation Practices

• Banks are mandated to follow board-approved policies for asset valuation using qualified and independent valuers.
• A register of empanelled valuers is maintained to ensure consistency and credibility.

Pre-Sale Valuation Procedures

• For properties worth ₹50 crore or more, banks must obtain at least two independent valuation reports.
• Valuation is conducted both during loan appraisal and before asset disposal under the SARFAESI Act, 2002.

Transparent Sale Process

• Upon enforcement of security interest in NPA accounts, banks possess and revalue the assets before initiating the sale.
• E-auctions are recommended by RBI as the preferred mode of sale, ensuring wide participation and optimal price discovery.

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Conclusion

The efforts of the government and RBI, through regulatory reforms, institutional strengthening, and strategic recovery mechanisms, have led to a marked improvement in the health of public sector banks. The decline in NPAs is a testament to the robustness of these measures and their effective implementation.

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