India’s Banking Sector Hits 20-Year NPA Low, Records Strongest Profit Surge

India’s banking sector has entered its most stable phase in two decades, with non-performing assets (NPAs) falling sharply and profitability reaching record levels. Official data released on Wednesday shows a system transformed by reforms, digital growth and improved financial discipline.

Gross NPAs dropped to 2.31% by March 2025, the lowest in 20 years, compared with a peak of 11.46% in 2018. Net NPAs also declined to 0.52%, reflecting stronger provisioning and tighter risk controls. Public sector banks (PSBs) continued this trend, bringing GNPA down from 9.11% in 2021 to 2.58% in 2025.

Banking activity expanded significantly over the decade. Domestic deposits nearly tripled, rising from ₹88.35 lakh crore in 2015 to ₹231.90 lakh crore in 2025. Credit also tripled, growing from ₹66.91 lakh crore to ₹181.34 lakh crore in the same period. Capital buffers strengthened, with CRAR improving from 12.94% in 2015 to 17.36% in 2025, alongside a higher CET-1 ratio of 14.81%.

Profitability saw its sixth straight year of growth. PSB profits rose from ₹1.05 lakh crore in FY 2022–23 to ₹1.78 lakh crore in FY 2024–25. Scheduled commercial banks (SCBs) posted their highest ever earnings of ₹4.01 lakh crore in FY 2024–25, with another ₹1.02 lakh crore in just the first quarter of FY26. Returns also strengthened, with RoA at 1.37% and RoE at 14.1%.

Officials credit the turnaround to a decade of structural reforms. These include the Asset Quality Review (2015), the Government’s 4R strategy, the Insolvency and Bankruptcy Code (2016), consolidation of PSBs, and strengthened recovery laws like SARFAESI and DRT amendments. The RBI’s proposed Expected Credit Loss (ECL) framework (2025) is expected to further modernize risk assessment.

With stronger balance sheets, banks are now focusing on sustained growth. Priorities include deeper deposit mobilization, expansion in corporate lending, greater green financing, and wider financial inclusion through schemes such as PM MUDRA, PM Vishwakarma and Kisan Credit Card (KCC).

Banks are also expanding their global presence via GIFT City and improving customer experience through multilingual digital services and upgraded branch infrastructure.

Once burdened by stressed assets, India’s banking sector has emerged as a resilient engine of economic growth. As the country moves toward becoming the world’s third-largest economy, banks are positioned to anchor financial stability and fuel the next decade of development.