New Delhi. New Delhi. Banks in the country are now losing less money and the Indian banking system appears to be stronger, more confident and more stable than ever before. This claim has been made in the latest report of Care Age Ratings. According to the report, there has been a sharp decline in non-performing assets (NPAs) of scheduled commercial banks (SCBs) in the second quarter of FY26, which shows that the loan recovery capacity of the banks is getting stronger. The decline in NPA of banks will increase their ability to distribute loans.
According to the report, the gross NPA ratio of scheduled commercial banks (SCBs) has declined to 2.1% in Q2FY26. A year ago this ratio was 2.6%. There has been a decline of more than 11.1% in gross NPA on an annual basis and the amount of GNPA has come down to ₹ 4.05 lakh crore, which is considered to be one of the biggest achievements of the cleanup campaign in the banking system in the last few years. According to the report, the GNPA ratio may remain in the range of 2.3-2.4% by the end of FY26, which is a strong level even by global standards.
How the NPA of banks reduced?
Many reasons are simultaneously contributing to this decline in NPA of banks. The recovery of banks has been more effective than before. Old bad loans are being upgraded in a better way. There has been a rapid decline in new slippages, which means fewer people are now becoming such borrowers whose loans suddenly collapse. Also, banks have continuously focused on cleaning up their portfolio. Writing off unproductive loans and reducing the burden on ARC by selling assets is part of this strategy. Overall, the picture that banks had envisioned a few years ago to overcome NPAs now seems to be becoming a reality.
Net NPA also improved
Net NPA ratio also indicates stability and improvement. NNPA has remained at 0.5% for the third consecutive quarter, whereas it was 0.6% a year ago. The amount of NNPA has also reduced to ₹0.88 lakh crore. There has been a decline of about 10% on annual basis. This is an indication that banks no longer have that many risky loans left which may cause them losses in the future.
Improvement on quarterly basis also
Even on a quarterly basis, the story of the banking sector seems to be improving. GNPA and NNPA have declined by 4.2% and 5.1% respectively. Lower slippage, higher recoveries and increasing asset sales to ARC have given new strength to the banking sector.
PSB also reduced NPA
The story of public sector banks has also become a part of this reform. The report shows that GNPA has decreased in every segment in PSBs. This is not the achievement of any one bank, but the combined effect of changing regulations, strict credit underwriting and continuous write-off strategies across the entire public sector banking network. Especially in the case of retail loans, banks have now adopted more caution and prudence, the benefit of which is directly visible on the asset quality.
Increase in credit offtake
The performance of banks is also encouraging on the development front. Credit offtake grew 11.7% year-on-year during the quarter, which was higher than deposit growth (9.7%). It is clear from this that the demand for loans remains strong in the market. At the same time, deposit mobilization is expected to increase further in the second half of FY26. Although overall credit growth is likely to be moderate, it is not expected to have an impact on the stability of the banking system.
These loans are in danger now
The report also warned that stress still remains in the low-ticket unsecured personal loan and microfinance sectors. The risk of default in these segments is high and they may pose a challenge to the banking system in the coming months. Apart from this, tariff action in America, global economic slowdown and domestic regulatory changes can also create risks.
