A Decade of Transformation: From Crisis to Confidence
Following the Global Financial Crisis and the “twin balance sheet problem”, India’s banks confronted rising debt, stressed corporate finances, and a surge in loan defaults. But the years that followed became a turning point. The government and RBI initiated sweeping reforms including the Asset Quality Review (AQR), Insolvency and Bankruptcy Code (IBC), recapitalisation of PSBs, and enhanced supervision.
These changes reshaped the financial ecosystem, compelling banks to clean up balance sheets, recognise hidden NPAs, and strengthen risk management systems. As a result, India’s banking system has transitioned from uncertainty to resilience.
NPAs Hit 20-Year Low: Stronger Asset Quality
One of the most remarkable improvements has been the significant fall in NPAs. After peaking at 11.46% in 2018 due to aggressive lending and stressed assets, gross NPAs have dropped to just 2.31% in 2025 the lowest in two decades. Net NPAs have also declined to 0.52%, reflecting robust provisioning and effective recovery measures.
The government’s 4R strategy Recognition, Resolution, Recapitalisation, Reforms played a pivotal role. Transparent NPA reporting, strengthened debt recovery laws, and the IBC framework brought discipline to credit markets, improving recovery rates and discouraging wilful default.
Profitability Surges Across PSBs and SCBs
Profitability indicators show strong and broad-based improvement. Public Sector Banks (PSBs) saw net profit rise from ₹1.05 lakh crore in FY 2022–23 to ₹1.78 lakh crore in FY 2024–25. Their total business expanded to ₹252 lakh crore, while dividend payouts nearly doubled.
Scheduled Commercial Banks (SCBs) reported a record ₹4.01 lakh crore in net profit in FY 24–25. In the first quarter of FY26 alone, they registered ₹1.02 lakh crore. Return on Assets improved to 1.37%, while Return on Equity reached 14.1%, highlighting healthy growth momentum.
Digital Push and Capital Strength Boost Resilience
India’s digital payments revolution—led by UPI, IMPS, and digital banking platforms—has drastically reduced transaction costs and expanded formal financial inclusion. The rise of digital lending and AI-driven risk assessment has improved underwriting standards and enhanced customer experience.
Capital adequacy remains a key strength: the CRAR improved to 17.36% in 2025, with CET-1 rising to 14.81%. This positions banks to support India’s growing investment appetite, from infrastructure to renewable energy.
Priorities for the Next Decade
As banks build on their regained stability, the next phase of growth will centre on:
- Strengthening deposit mobilisation in rural and semi-urban regions
- Deepening corporate lending in productive sectors
- Financing India’s green energy transition, including SMR technologies
- Expanding international operations through GIFT City
- Enhancing customer service with multilingual digital platforms
- Supporting financial inclusion schemes like PM MUDRA and PM Vishwakarma
With these priorities, banks will play a central role in powering India’s journey toward becoming the world’s third-largest economy.
Conclusion
India’s banking sector today stands at its strongest point in decades. Transparent reforms, decisive regulatory action, digital innovation, and improved governance have rebuilt confidence and ensured long-term stability. With clean balance sheets, rising profitability, and a forward-looking strategy, India’s banks are well-positioned to support the country’s next wave of economic growth and global integration.
