New Delhi,(ABC Live): Indian Banks NPA Reduction: Minister of State in the Ministry of Finance Shri Pankaj Chaudhary, in a written reply to a question in Rajya Sabha today, informed the house that gross non-performing assets (NPAs) of public sector banks have been declining during the last five financial years. The NPAs have reduced from 9.11% to 2.58% from March 2021 to March 2025. Gross NPAs in India’s PSBs have hit a record low, reflecting sweeping reforms—but a deep dive by the ABC Research team shows much of the decline came through accounting measures, not just recoveries.

The Decline in NPAs: Year-by-Year Data

*Annual recovery figures are included in total below.

Sources: RBI Annual Reports, PIB Finance Data, CAG Write-Off Reports

Write-Offs: The Biggest Factor in NPA Reduction

From FY2015 to FY2024, Indian banks—mainly PSBs—wrote off over ?12 lakh crore in bad loans. Each year, write-offs contributed more than 50% of the total NPA reduction.

• Between April 2017 and March 2023:

  • Total loans written off: ?10,09,510 crore

  • Cash recovered: ?1,32,036 crore

  • Average recovery rate: Only 13.1%

While these write-offs clean up the balance sheet, most written-off loans are not fully recovered, impacting bank profitability and capital.

Sale to Asset Reconstruction Companies (ARCs): Data and Trends

• Banks increasingly sold bad loans to ARCs, especially after 2016, as part of cleaning books and meeting regulatory requirements.

• However, ARCs buy NPAs at discounts of 65–75%, meaning banks immediately absorb large losses.

Top ARC Sale Years:

• 2017–18: ?66,864 crore

• 2018–19: ?87,587 crore

• 2021–22: ?61,029 crore

ARC Recovery Rates: Typically only 25–35% of face value, with the remainder written off as a loss.

Loan Restructuring: Temporarily Masking Asset Stress

• During the COVID-19 pandemic, RBI allowed a one-time restructuring window.

• By March 2022, over ?1.2 lakh crore in advances were restructured, much of which was not classified as NPA despite underlying weakness.

• Past experience shows that many restructured loans eventually turn into NPAs in later years.

Real Recovery vs. Cosmetic Reduction

Total “cosmetic” reduction (write-offs + ARC sales + restructuring):
Over 60% of reported NPA reduction between 2021 and 2025 came from book-keeping tools.

True cash recoveries—through SARFAESI, DRTs, IBC, or direct settlements—remain limited:

Despite legal reforms, slow courts and poor collateral value have restricted the speed and scale of real recoveries.

Sector Comparison: Public vs. Private Banks

• Public Sector Banks (PSBs):

  • Account for over 85% of write-offs and ARC sales.

  • Faced the brunt of legacy corporate defaults and infrastructure NPAs.

• Private Sector Banks:

  • NPAs peaked at lower levels (generally under 5%).

  • Less reliant on write-offs, but increasing as retail loan stress emerges.

Global Perspective: Where Does India Stand?

India’s current NPA ratio is now better than many emerging markets, but much of this is due to aggressive book-keeping measures rather than higher recovery rates.

Expert Insights: Sustainable or Superficial?

Banking analysts warn that unless lending standards and due diligence improve, the NPA cycle could repeat.

“The headline NPA ratio looks impressive, but real recovery is still low. Write-offs and asset sales should be a last resort, not a routine practice. India must focus on accountability, faster legal enforcement, and risk-based lending,” says a senior banking analyst at ABC Live.

Conclusion: The Way Forward

• Greater transparency in post-write-off and ARC recovery data.

• Faster legal processes under IBC, SARFAESI, and DRT.

• Improved credit appraisal and responsible lending.

• Continuous regulatory vigilance to avoid future NPA spikes.

References & Further Reading

• RBI: Trends and Progress of Banking in India

• CAG Write-Off Reports

• PIB India: Ministry of Finance NPA Data

Also, read

Meri Panchayat App: Critical Review of Rural Governance