Asset Quality of Banks Hits Multi-Decade Lows: Economic Survey

The banking industry in India has silently accomplished what was considered impossible at one point in time. According to the Economic Survey 2025-26, the asset quality of the Scheduled Commercial Banks (SCBs) has been improved to multi-decade lows, which is a clear shift from the distressed balance sheets of the previous decade. This is more than just a financial indicator for the banking community, regulators, professionals, and taxpayers.

The Survey points out that Gross Non-Performing Assets (GNPA) have shown a significant reduction from a high of 11.2% in March 2018 to approximately 3% in March 2025, and Net NPAs (NNPA) have reduced to close to 0.5%, the lowest in decades . This is a result of better credit underwriting, faster resolution of stressed assets, and better regulatory supervision.

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What is needed to take into consideration is that this has happened without hampering credit growth. In fact, bank credit to Micro and Small Enterprises (MSEs) has continued its strong increasing growth registering much growth on each year basis particularly in the industry and services sectors

The increase in lending to industry and services reflects improved confidence in borrower quality and improved risk management techniques. The Survey also points to effective transmission of monetary policy, with lending and deposit rates responding efficiently to policy changes.

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According to the Economic Survey, the major reasons for the sharp improvement in asset quality are as follows:

• Enhanced regulatory oversight by the RBI
• Time-bound handling of stressed assets through institutional mechanisms
• Improved credit appraisal processes, especially in Public Sector Banks
• Revival in economic activity and formalization

In view of supporting the Chartered Accountants and tax professionals, lower Non Performing Assets [NPAs] mean cleaner balance sheets, better provisioning, and improved valuation ratios. For businesses and individuals, it means cheaper

faster and more reliable access to credit. For the economy a strong bank balance sheet acts as a provider in a world of global economic shift.

A lower number of NPAs means that the balance sheets of banks are stronger, and they are able to provide more credit to the productive sectors. This means that for businesses and individuals, more credit will be available at competitive rates.

The Economic Survey 2025-26 highlights that the Indian banking system has entered a period of structural improvement, with asset quality multi-decade lows.

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