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

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?