Relevance: GS-III (Indian Economy – Banking & Financial Stability) | Source: Indian Express; Reserve Bank of India

What is the News?

The Reserve Bank of India has reported that the Gross Non-Performing Asset ratio of scheduled commercial banks declined to 2.1 percent, marking a multi-decade low and reflecting a sustained improvement in banking sector asset quality.

Key Facts

  • Gross Non-Performing Asset ratio: 2.1 percent (September 2025)
  • Net Non-Performing Asset ratio: about 0.5 percent
  • Public sector banks: Significant improvement due to recoveries and upgrades
  • Drivers:
    • Higher recoveries and upgradation of stressed assets
    • Lower fresh slippages
    • Improved credit appraisal and monitoring

Why it Matters

  • Indicates strengthened financial stability and healthier bank balance sheets
  • Enhances banks’ capacity to support credit growth and investment
  • Reflects success of post-2015 banking reforms

Policy Framework Behind the Improvement

  • Insolvency and Bankruptcy Code for time-bound resolution
  • Asset Quality Review for transparent recognition
  • Prompt Corrective Action framework for weak banks
UPSC Prelims Value Box

Key Concept
A Non-Performing Asset is a loan where interest or principal remains overdue for more than 90 days.

Institution / Law
Insolvency and Bankruptcy Code, 2016 – primary framework for resolving stressed assets.

Q. With reference to Non-Performing Assets in India, consider the following statements:

  1. Gross Non-Performing Asset ratio measures bad loans as a proportion of total advances.
  2. The Insolvency and Bankruptcy Code aims at time-bound resolution of stressed assets.

Which of the statements given above is/are correct?

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