There has been a notable enhancement in the asset quality of scheduled commercial banks as per the Economic Survey 2025-26 presented in Parliament by Finance Minister Nirmala Sitharaman. The survey highlights a significant drop in bad loans and increased recoveries. It mentions that the gross non-performing asset (GNPA) ratio and net NPA ratio have hit multi-decadal lows, while banks’ capital-to-risk-weighted-asset ratio (CRAR) stands strong at 17.2% as of September 2025.
Moreover, the recovery rate in non-performing assets (NPAs) within banks has nearly doubled from 13.2% in FY18 to 26.2% in FY25. The survey also acknowledges a substantial improvement in the recovery rate through the Insolvency and Bankruptcy Code, 2016 (IBC Code). The government has implemented various measures to optimize resources and enhance the performance of regional rural banks (RRBs).
During FY24, RRBs achieved a record consolidated net profit of Rs 7,600 crore, followed by the second-highest consolidated net profit of Rs 6,800 crore during FY25. The consolidation process, based on the principle of One-State-One-RRB, has reduced the number of RRBs from 196 to 28 as of May 1, 2025. Additionally, the integration of Core Banking Solution and other IT systems of amalgamated RRBs into unified platforms has been undertaken.
RRBs have consistently surpassed the priority sector lending target of 75% of their adjusted net bank credit over the years, demonstrating their commitment to fulfilling foundational objectives. The Union Budget 2025-26 introduced measures such as increased credit availability with guarantee cover for MSMEs and the launch of credit cards for micro-enterprises, benefiting the sector.
The revision in MSMEs classification, with raised investment limits and turnover thresholds, has contributed to this growth. Bank credit to the MSME sector continues to exhibit momentum and remains robust. Major policy actions include the launch of the credit assessment model (CAM) for MSMEs based on digital footprints in 2025.
Between April 1 and November 30, 2025, public sector banks (PSBs) sanctioned over Rs 3.2 lakh crore MSME loan applications, amounting to more than Rs 41,500 crore, under the credit programmes of CAM. This model leverages digitally fetched and verifiable data to enable automated loan appraisal for MSMEs, enhancing the ease of doing business for them. It also integrates credit guarantee schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
The RBI has initiated a significant reorganization of its regulatory instructions, marking a transformative change in regulatory communication. Instructions issued by NABARD to RRBs, State Cooperative Banks, and Central Cooperative Banks were consolidated in consultation with NABARD, as per the survey.
