The impressive drop in non-performing assets (NPAs) of India’s public sector banks (PSBs) didn’t happen overnight. According to economist Pankaj Jaiswal, this achievement is the result of a well-coordinated effort between the Reserve Bank of India (RBI) and the central government. The collaboration has brought gross NPAs down to just 2.58% in 2025, marking a major milestone in the country’s financial health.
Jaiswal emphasized that the RBI and the government worked hand in hand to tackle the issue of stressed assets. Their combined strategies have played a pivotal role in cleaning up the banking sector. A decade ago, the situation was far worse, with widespread evergreening of loans and a high number of industrial accounts under severe stress.
The introduction of the Insolvency and Bankruptcy Code (IBC) by the NDA government was a game-changer. It put an end to the practice of evergreening loans, where banks would extend new credit to cover old defaults. The IBC helped clear out chronic defaulters and brought more accountability to the lending process. Jaiswal noted that this legal framework was instrumental in improving the overall asset quality of PSBs.
Another crucial step was the RBI’s Asset Quality Review (AQR). This initiative ensured that loans were classified correctly and not hidden under misleading categories. By mandating stricter monitoring at the branch level, the RBI made sure that stressed assets were identified and addressed promptly. This level of oversight significantly contributed to reducing NPAs.
Loan disbursement processes have also seen a massive overhaul. Banks now rigorously check a borrower’s credit history and repayment capacity before approving loans. This proactive approach has strengthened both the disbursal system and post-loan monitoring. The outcome is evident in the numbers. The total amount stuck in gross NPAs of public sector banks dropped from Rs 6,16,616 crore in March 2021 to Rs 2,83,650 crore in March 2025.
Jaiswal highlighted that the government’s strategy was both clear and targeted. Every step, from policy changes to enforcement mechanisms, was designed to tackle NPAs head-on. The results speak for themselves, showcasing a robust turnaround in the financial health of India’s public sector banks.