A bank's main asset is its loan book, and a loan is only an asset while the borrower pays. When payments stop, the loan becomes a non-performing asset (NPA): the bank stops counting its interest as income, sets money aside against the likely loss, and starts trying to recover what it can. India learned the cost of bad loans the hard way. Between 2015 and 2018 the share of bad loans in banks' books more than doubled, public sector banks ran up large losses, and credit growth stalled. By March 2026 the gross NPA ratio had fallen to 1.8%, a multi-decadal low. This part explains the rules behind the numbers: when a loan becomes an NPA, how it is classified and provided for, how the headline ratios are calculated, how the 2015–2018 crisis happened and was cleaned up, and how banks recover bad loans.
The RBI's wider role in financial stability (FSR, PCA, D-SIBs) is in Part 15, and the move to expected credit loss provisioning from 2027 is covered in Part 18. The insolvency process itself is the subject of Part 26, and the companies that buy bad loans from banks of Part 37.
In the news
- 21 July 2026: GNPA at 1.73%, says the government. In a written reply in the Rajya Sabha, the Finance Ministry said the gross NPAs of scheduled commercial banks fell to 1.73% in March 2026 from 2.75% in March 2024. Public sector banks' gross NPAs fell from ₹6.16 lakh crore in March 2021 to ₹2.45 lakh crore in March 2026, and private banks' from ₹2.02 lakh crore to ₹1.26 lakh crore; small finance banks were the exception, with NPAs rising from ₹5,971 crore to ₹10,448 crore. Why it matters for the exam: different sources give slightly different ratios (1.73% here, 1.8% in the FSR), so match the source named in the question.
- 30 June 2026: Financial Stability Report, June 2026. The GNPA ratio of scheduled commercial banks fell to 1.8% in March 2026, and the annual slippage ratio to 1.2% in 2025-26. In the baseline stress test the GNPA ratio of 46 major banks rises only to about 1.9% by March 2028. Why it matters for the exam: the latest GNPA ratio and slippage ratio are standard current-affairs questions.
- 27 April 2026: expected credit loss (ECL) directions. The RBI issued final directions moving commercial banks from incurred-loss to expected credit loss provisioning from 1 April 2027. The 90-day NPA rule stays. Why it matters for the exam: ECL changes when banks provide for bad loans, not when a loan is called an NPA.
- 31 December 2025: Financial Stability Report, December 2025. The GNPA ratio of scheduled commercial banks stood at 2.1% in September 2025, and the RBI found banks' health "sound" with improved asset quality. Why it matters for the exam: the FSR comes out twice a year, in June and December.
- 29 December 2025: Report on Trend and Progress of Banking in India 2024-25. The GNPA ratio fell to 2.2% and the NNPA ratio to 0.5% in March 2025; the slippage ratio fell for the fifth year running, to 1.4%; banks wrote off ₹1,57,563 crore of bad loans in 2024-25; and the IBC recovered 36.6% of the amounts involved, ahead of SARFAESI at 31.5%. Why it matters for the exam: the recovery-channel table in this report is the source of most questions on recovery rates.
- 28 November 2025: NPA rules consolidated. In the RBI's consolidation of 244 Master Directions, the old Master Circular on income recognition, asset classification and provisioning (IRAC) became the Commercial Banks – Income Recognition, Asset Classification and Provisioning Directions, 2025, and the June 2019 framework became the Commercial Banks – Resolution of Stressed Assets Directions, 2025. Why it matters for the exam: the rules did not change, only where they are written.
What makes a loan an NPA
An NPA is defined by the RBI as an asset that "has ceased to generate income for a bank". In practice, a loan becomes an NPA when payments are overdue for more than 90 days. An amount is overdue if it is not paid on the due date fixed by the bank. Under the RBI's directions a loan or advance is an NPA if:
- Term loans: interest or an instalment of principal is overdue for more than 90 days.
- Cash credit and overdrafts: the account is "out of order": the balance stays above the sanctioned limit or drawing power for 90 days in a row, or there are no credits for 90 days in a row, or the credits in the past 90 days are not enough to cover the interest charged.
- Bills purchased and discounted: the bill is overdue for more than 90 days.
- Credit cards: the minimum amount due is not paid within 90 days of the payment due date in the statement.
- Agricultural loans: the instalment is overdue for two crop seasons for short-duration crops, or one crop season for long-duration crops.
- Limits not renewed: a working-capital limit has not been reviewed or renewed within 180 days of its due date.
Three further rules matter:
- Day-end process. Since November 2021 the RBI has insisted that banks classify accounts automatically, as part of the day-end process for each calendar date. A loan due on 31 March and still unpaid becomes SMA-1 on 30 April, SMA-2 on 30 May and an NPA on 29 June, as the RBI's own illustration shows.
- Borrower-wise, not facility-wise. If one loan of a borrower is an NPA, all the borrower's facilities with that bank are treated as NPAs.
- Upgrading needs full payment. An NPA can go back to "standard" only when the borrower pays all arrears of interest and principal, on all facilities. Paying part of the arrears is not enough.
Once a loan is an NPA, the bank must stop booking interest on it. Banks recognise income on an accrual basis "only in respect of credit facilities which are classified as Standard"; on NPAs, interest counts only when it is actually received.
Before the 90 days: special mention accounts
The RBI wants banks to spot trouble before the 90th day. Since the Prudential Framework for Resolution of Stressed Assets of 7 June 2019, lenders must flag stress "immediately on default" by classifying the account as a special mention account (SMA):
| Category | Loans: principal or interest overdue for | Cash credit and overdrafts: over the limit continuously for |
|---|---|---|
| SMA-0 | 1–30 days | (no SMA-0) |
| SMA-1 | 31–60 days | 31–60 days |
| SMA-2 | 61–90 days | 61–90 days |
| NPA | More than 90 days | More than 90 days (out of order) |
SMA accounts are still standard assets. They need no extra provision, but lenders must report them for all borrowers with an aggregate exposure of ₹5 crore or more to the Central Repository of Information on Large Credits (CRILC), monthly, plus a weekly report of defaults every Friday. CRILC lets every bank see when a big borrower has started to default with another bank.
Classifying NPAs: substandard, doubtful and loss
Once a loan is an NPA, it moves down a ladder depending on how long it has been an NPA and how much the bank can realistically recover.
- Substandard asset: an NPA for 12 months or less.
- Doubtful asset: an asset that has been substandard for 12 months. It is split by time spent as doubtful into D1 (up to one year), D2 (one to three years) and D3 (more than three years).
- Loss asset: an asset where the loss has been identified by the bank, its auditors or the RBI's inspectors, but has not been fully written off. It is "considered uncollectible and of such little value that its continuance as a bankable asset is not warranted".
The ladder can be skipped. If the realisable value of the security falls below 50% of its assessed value, or there is fraud, the NPA can go straight to doubtful. If the security is worth less than 10% of the outstanding, it is ignored and the asset goes straight to loss.
Provisioning rates
A provision is money set aside from profits against an expected loss. It reduces the bank's profit in the year it is made. The IRAC directions set these minimum rates:
| Category | Provision required |
|---|---|
| Standard assets: farm credit, individual housing loans, small and micro enterprises | 0.25% |
| Standard assets: commercial real estate (CRE) | 1.00% |
| Standard assets: CRE – residential housing | 0.75% |
| Standard assets: all other loans, including medium enterprises | 0.40% |
| Substandard | 15% of the outstanding |
| Substandard, unsecured exposure | 25% (20% for infrastructure loans with escrowed cash flows) |
| Doubtful D1 (up to 1 year) | 100% of the unsecured portion + 25% of the secured portion |
| Doubtful D2 (1–3 years) | 100% of the unsecured portion + 40% of the secured portion |
| Doubtful D3 (over 3 years) | 100% |
| Loss | 100% (loss assets should be written off) |
An unsecured exposure is one where the realisable value of the security is not more than 10% of the exposure from the start. Security means tangible security properly charged to the bank; guarantees and comfort letters do not count. Standard asset provisions are held separately and are not deducted when calculating net NPAs.
The ratios: GNPA, NNPA, PCR and slippage
Gross and net NPAs
- Gross NPAs (GNPAs) are the total outstanding of all loans classified as NPAs, before any provisions.
- GNPA ratio = gross NPAs ÷ gross advances × 100.
- Net NPAs (NNPAs) = gross NPAs − provisions held against NPAs (and a few other deductions, such as DICGC or ECGC claims received and floating provisions).
- NNPA ratio = net NPAs ÷ net advances × 100, where net advances = gross advances − the same deductions.
The GNPA ratio shows how much of the loan book has gone bad. The NNPA ratio shows how much of that bad debt is not yet covered by provisions, and so could still hit capital. That is why the RBI's PCA framework uses the net NPA ratio (threshold 1 at 6%) and not the gross ratio.
Provision coverage ratio
The provision coverage ratio (PCR) is "the ratio of provisioning to gross non-performing assets". A higher PCR means a bank has already absorbed more of the loss. Two versions are quoted:
- PCR not adjusted for write-offs: specific provisions ÷ gross NPAs. This is the version in RBI reports: 76.3% for all scheduled commercial banks in March 2025 (PSBs 78.5%, private banks 72.6%).
- PCR including technical write-offs: adds loans that have been technically written off to both the provisions and the gross NPAs. Banks often quote this version in their results, which is why individual banks report PCRs above 90%.
Slippage ratio
The slippage ratio measures how fast new bad loans are being created: fresh NPAs during the year ÷ standard advances at the start of the year. For scheduled commercial banks it fell for a fifth straight year to 1.4% in 2024-25 and, according to the June 2026 FSR, to 1.2% in 2025-26. A falling GNPA ratio can come from good recoveries or from heavy write-offs; a falling slippage ratio shows that fewer loans are going bad in the first place.
Two numbers for the same thing
Exam options sometimes differ by a few tenths of a percentage point, because the RBI publishes two series:
- The Financial Stability Report uses supervisory returns: 11.6% at the March 2018 peak (as first reported), 2.3% in March 2025 and 1.8% in March 2026.
- The Report on Trend and Progress of Banking uses banks' annual accounts: 11.2% in March 2018 and 2.2% in March 2025.
Neither is wrong. Use the one that matches the report named in the question.
Write-offs
A bank writes off a loan when it removes it from the balance sheet, using the provisions already made against it. Loss assets "should be written off", and banks also write off old NPAs that are fully provided for, to clean up their books, claim tax deductions and use capital better.
A write-off is an accounting step, not a waiver. The borrower still owes the money and the bank keeps trying to recover it. The RBI's Framework for Compromise Settlements and Technical Write-offs (8 June 2023) draws the line clearly:
- A technical write-off removes an NPA from the books "only for accounting purposes, without involving any waiver of claims against the borrower, and without prejudice to the recovery". The loan still exists at the borrower's account level.
- A compromise settlement is a negotiated deal in which the borrower pays a settled amount in cash and the bank does give up the rest of its claim. If payment takes more than three months, it is treated as a restructuring. Before lending to that borrower again, the bank must wait for a cooling period of at least 12 months (for non-farm loans). Settlements with fraudsters or wilful defaulters need Board approval.
Write-offs have been the biggest single reason for the fall in NPAs. Scheduled commercial banks wrote off about ₹1.63 lakh crore in 2017-18, ₹2.37 lakh crore in 2018-19, ₹2.38 lakh crore in 2019-20, ₹2.08 lakh crore in 2020-21, ₹1.79 lakh crore in 2021-22, ₹2.17 lakh crore in 2022-23, ₹1.69 lakh crore in 2023-24 and ₹1.58 lakh crore in 2024-25: roughly ₹15.7 lakh crore over eight years (from 2020-21 the figures include prudential, or technical, write-offs). In 2024-25 write-offs were 57% of the total reduction in gross NPAs; recoveries and upgrades made up the other 42.8%.
How the crisis happened: the twin balance sheet problem
The Economic Survey 2016-17 (Chapter 4, "The Festering Twin Balance Sheet Problem") gave India's bad-loan crisis its name. The twin balance sheet problem meant two weak balance sheets feeding each other:
- Over-leveraged companies. In the infrastructure boom of the mid-2000s, firms in power, steel, roads and telecom borrowed heavily, expecting fast growth. Then costs overran, projects stalled over land and environmental clearances, and global commodity prices fell. By 2015 nearly 40% of the debt of large listed companies was owed by firms whose earnings did not cover their interest payments (an interest coverage ratio below one).
- Bad-loan-encumbered banks. The banks, mostly public sector, that had lent to these firms faced rising NPAs, falling profits and shrinking capital. Rather than recognise the losses, many evergreened loans: they lent fresh money so the borrower could pay the interest, or restructured loans under the old Corporate Debt Restructuring (CDR), Strategic Debt Restructuring (SDR) and S4A schemes, which let a restructured loan stay "standard".
The Survey estimated that, counting restructured loans and unrecognised stressed loans, total stressed assets were about 16.6% of banking system loans, and nearly 20% at public sector banks. It proposed a centralised Public Sector Asset Rehabilitation Agency (PARA) to take over the largest bad loans. It also framed the solution as four Rs: Recognition, Resolution, Recapitalisation and Reform.
The effect on the economy was the classic one: banks with weak balance sheets stopped lending, and over-indebted companies stopped investing. Credit and investment growth fell together.
The 2015 Asset Quality Review
Recognition came first. In 2015, under Governor Raghuram Rajan, the RBI carried out an Asset Quality Review (AQR): during its annual inspections, supervisors checked large loan accounts across banks to verify that each bank was classifying them "in line with RBI loan classification rules". Where an account was an NPA in one bank's books but standard in another's, or was being kept alive by restructuring, the banks were told to recognise it as an NPA and provide for it. Deviations were to be rectified by March 2016.
The results showed up in the December 2015 quarter. In February 2016, as the Survey recalls, public sector banks one by one reported NPAs so large that provisioning "overwhelmed operating earnings" and turned profits into losses. In 2015-16 public sector banks as a group made a loss, with a return on assets of −0.20%.
The AQR did not create bad loans; it made banks admit to them. That is why the GNPA ratio kept rising for two more years, to its peak in March 2018:
| End-March | GNPA ratio | NNPA ratio |
|---|---|---|
| 2015 | 4.3% | 2.4% |
| 2016 | 7.5% | 4.4% |
| 2017 | 9.3% | 5.3% |
| 2018 | 11.2% (peak; 11.6% in the FSR) | 6.0% |
At the peak, gross NPAs of scheduled commercial banks were about ₹10.4 lakh crore, of which public sector banks held ₹8.96 lakh crore. Public sector banks' own GNPA ratio was 14.6%.
The clean-up, 2018 to 2026
After recognition came resolution and recapitalisation. The Insolvency and Bankruptcy Code (IBC) of 2016 gave creditors a time-bound way to take over failing companies, and in June 2017 the RBI directed banks to take 12 large defaulters to the National Company Law Tribunal. A circular of 12 February 2018 scrapped the old restructuring schemes and required resolution within 180 days of default. The government recapitalised public sector banks, and the weakest were placed under Prompt Corrective Action.
The ratios then fell for seven years running:
| End-March | GNPA ratio | NNPA ratio | What drove it |
|---|---|---|---|
| 2019 | 9.1% | 3.7% | Big write-offs; first IBC resolutions |
| 2020 | 8.2% | 2.8% | Write-offs and higher provisions |
| 2021 | 7.3% | 2.4% | Pandemic moratorium and restructuring held NPAs down |
| 2022 | 5.8% | 1.7% | Recoveries, upgrades, lower slippage |
| 2023 | 3.9% | 0.9% | Decadal low |
| 2024 | 2.7% | 0.6% | Lowest in 13 years |
| 2025 | 2.2% | 0.5% | Multi-decadal low |
| 2026 | 1.8% (FSR) | n.a. | Slippage ratio down to 1.2% |
(Ratios to 2025 are from the Trend and Progress reports, based on annual accounts; 2026 is from the June 2026 FSR.)
The June 2019 Prudential Framework
The rules that govern stressed loans today date from 7 June 2019, when the RBI issued the Prudential Framework for Resolution of Stressed Assets, replacing the February 2018 circular. It applies to scheduled commercial banks (except RRBs), all-India financial institutions, small finance banks and larger NBFCs. Its main features:
- Early recognition: the SMA-0/1/2 classification, from the day of default.
- Review period: once a borrower defaults with any lender, all lenders must review the account within 30 days and decide on a resolution strategy. They may also start insolvency or recovery proceedings.
- Inter-creditor agreement (ICA): if a resolution plan is to be implemented, lenders sign an ICA during the review period. Decisions agreed by lenders holding 75% by value and 60% by number bind all of them.
- Deadline: for large borrowers (at first those with aggregate exposure of ₹2,000 crore or more, then ₹1,500 crore or more from 1 January 2020), the plan must be implemented within 180 days from the end of the review period.
- Disincentive for delay: if it is not, every lender must make an additional provision of 20% of the outstanding; if it is still not implemented 365 days from the start of the review period, a further 15%, for a total extra provision of 35%. Half of the extra provision can be reversed when an insolvency application is filed under the IBC, and the rest when it is admitted.
The framework does not force lenders to go to the IBC. It makes delay expensive, so lenders either agree on a plan quickly or go to court.
From 2027: expected credit loss
The present system is an incurred-loss model: banks provide mainly after a loan has gone bad. From 1 April 2027, commercial banks (other than small finance, payments and local area banks) move to expected credit loss (ECL) provisioning under directions issued on 27 April 2026. Loans will be placed in three stages (performing, significant increase in credit risk, credit-impaired) and provided for in advance, subject to RBI floors. Banks can spread the one-time hit to capital until 31 March 2031. Crucially, the 90-day NPA definition stays: ECL changes how much banks set aside and when, not when a loan is called an NPA. The details are in Part 18.
Recovering bad loans
Banks have four main legal channels, plus the sale of loans to asset reconstruction companies (ARCs):
- Lok Adalats ("people's courts") settle small cases by compromise. They suit small loans (up to ₹20 lakh) and handle millions of cases a year, but recover a tiny share of the amounts involved.
- Debt Recovery Tribunals (DRTs), set up under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (now the Recovery of Debts and Bankruptcy Act), hear claims of ₹20 lakh or more. Appeals go to the Debt Recovery Appellate Tribunals. They are slow because of large backlogs.
- SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) lets a secured lender, after a 60-day notice, take possession of and sell the security without going to court. It works only for secured loans, and does not apply to agricultural land or to loans below ₹1 lakh.
- Insolvency and Bankruptcy Code, 2016: a financial creditor applies to the NCLT once the default is ₹1 crore or more; the committee of creditors then picks a resolution plan or the company is liquidated. The IBC covers the whole company, not just one creditor's security, and has recovered the most money in recent years.
The RBI's Report on Trend and Progress of Banking 2024-25 gives the latest numbers:
| Channel | Cases referred, 2024-25 | Amount involved (₹ crore) | Amount recovered (₹ crore) | Recovery rate 2024-25 | Recovery rate 2023-24 |
|---|---|---|---|---|---|
| Lok Adalats | 1,49,12,705 | 1,97,907 | 4,742 | 2.4% | 1.8% |
| DRTs | 34,430 | 1,29,516 | 12,363 | 9.5% | 17.0% |
| SARFAESI Act | 2,15,709 | 1,03,180 | 32,466 | 31.5% | 25.4% |
| IBC (cases admitted) | 732 | 1,49,045 | 54,528 | 36.6% | 28.3% |
| Total | 1,51,63,576 | 5,79,648 | 1,04,099 | 18.0% | 17.2% |
Three things to note. First, the IBC accounted for 52.4% of all money recovered in 2024-25 (49.5% the year before), even though it handled only 732 cases. Second, the "recovery rate" here is the amount recovered during the year as a share of the amount involved in cases referred that year, so it is a rough measure; recoveries can relate to cases referred in earlier years. Third, under the IBC, realisable value was 170.1% of liquidation value at end-September 2025, meaning resolution plans recovered far more than selling off the assets would have.
Asset reconstruction companies buy NPAs from banks, usually paying mostly in security receipts rather than cash, and then try to recover them. There were 27 reporting ARCs in March 2025, and the outstanding book value of the assets they had acquired was ₹16.2 lakh crore. ARCs and the government-backed National Asset Reconstruction Company (NARCL) are covered in Part 37.
Worked examples
Example 1: provisioning as a loan moves down the ladder
A bank lent ₹10 crore to a company. The loan became an NPA on 1 April 2025. The realisable value of the security is ₹6 crore, so the secured portion is ₹6 crore and the unsecured portion ₹4 crore.
- Substandard (first 12 months as an NPA): 15% × ₹10 crore = ₹1.5 crore.
- Doubtful D1 (from 1 April 2026): unsecured portion 100% × ₹4 crore = ₹4 crore; secured portion 25% × ₹6 crore = ₹1.5 crore. Total = ₹5.5 crore.
- Doubtful D2 (from 1 April 2027): ₹4 crore + 40% × ₹6 crore = ₹4 + ₹2.4 = ₹6.4 crore.
- Doubtful D3 (from 1 April 2029): ₹10 crore (100%).
Each step up is charged to profit in the year it happens. If the security had been worth only ₹0.8 crore (8% of the outstanding, below 10%), the loan would have gone straight to loss and needed a 100% provision at once.
Example 2: GNPA, NNPA and PCR, with and without technical write-offs
A bank has gross advances of ₹5,00,000 crore, gross NPAs of ₹12,000 crore and specific provisions against NPAs of ₹8,400 crore. Over the years it has also technically written off ₹6,000 crore of fully provided loans that it is still trying to recover.
- GNPA ratio = 12,000 ÷ 5,00,000 = 2.4%
- Net NPAs = 12,000 − 8,400 = ₹3,600 crore. Net advances = 5,00,000 − 8,400 = ₹4,91,600 crore.
- NNPA ratio = 3,600 ÷ 4,91,600 = 0.73%
- PCR (not adjusted for write-offs) = 8,400 ÷ 12,000 = 70%
- PCR including technical write-offs = (8,400 + 6,000) ÷ (12,000 + 6,000) = 14,400 ÷ 18,000 = 80%
The same bank can honestly report a PCR of 70% or 80%. Always check which definition is being used.
Example 3: where did the NPAs go in 2024-25?
From Table IV.9 of the RBI's Trend and Progress report (₹ crore, all scheduled commercial banks):
- Opening gross NPAs: 4,80,619
- Add new NPAs during the year: + 2,26,359
- Less reductions: − 2,75,344, made up of recoveries 67,693, upgrades 50,087 and write-offs 1,57,563
- Closing gross NPAs: 4,80,619 + 2,26,359 − 2,75,344 = 4,31,634
Share of the reduction from recoveries and upgrades = (67,693 + 50,087) ÷ 2,75,344 = 1,17,780 ÷ 2,75,344 = 42.8%. Write-offs made up the remaining 57.2%. New NPAs of ₹2.26 lakh crore show that loans still go bad every year, even when the ratio is at a record low; the stock falls only because reductions are larger.
Example 4: slippage ratio
A bank had standard advances of ₹8,00,000 crore on 1 April 2025. During 2025-26, loans of ₹9,600 crore slipped into the NPA category.
- Slippage ratio = 9,600 ÷ 8,00,000 × 100 = 1.2%, the same as the system figure for 2025-26.
Example 5: the June 2019 framework's extra provisions
Five banks have lent ₹1,000 crore in total to a large borrower, which defaults on 1 July 2025. One bank has an exposure of ₹300 crore.
- The review period runs for 30 days, to 31 July 2025. The lenders sign an inter-creditor agreement but fail to implement a plan.
- 180 days after the review period ends (late January 2026): each lender makes an extra provision of 20%. For the ₹300 crore bank: 20% × 300 = ₹60 crore.
- 365 days from the start of the review period (1 July 2026): a further 15% = ₹45 crore, so ₹105 crore (35%) in total, on top of the normal provisions for its NPA classification. If the account is substandard (15% = ₹45 crore), the bank now holds ₹150 crore, half the loan.
- If the lenders file an IBC application, the bank can reverse half the extra provision (₹52.5 crore), and the rest when the case is admitted.
Common exam traps
- More than 90 days, not 90 days. An instalment overdue for exactly 90 days is SMA-2; it becomes an NPA when it is overdue for more than 90 days.
- SMA accounts are standard assets. SMA-0, SMA-1 and SMA-2 are early-warning tags, not NPA categories, and need no extra provision. Revolving facilities (cash credit, overdraft) have no SMA-0.
- Substandard → doubtful after 12 months, not 12 months from the first default.
- D1/D2/D3 rates apply to the secured portion (25%, 40%, 100%); the unsecured portion of a doubtful asset needs 100% from the start.
- Standard asset provisions are not deducted when calculating net NPAs.
- PCA uses net NPAs, not gross NPAs.
- A write-off is not a waiver. Only a compromise settlement gives up part of the claim; a technically written-off loan is still owed.
- Lok Adalats handle the most cases, the IBC recovers the most money. In 2024-25 the IBC had the highest recovery rate (36.6%), then SARFAESI (31.5%), DRTs (9.5%) and Lok Adalats (2.4%).
- SARFAESI does not need a court, but it works only for secured loans and not for agricultural land.
- ECL does not replace the 90-day NPA rule. It changes provisioning from 1 April 2027.
- 11.2% or 11.6%? The March 2018 GNPA peak is 11.2% in the annual-accounts series and 11.6% in the FSR as first reported.
Key facts at a glance
| NPA | Interest or principal overdue for more than 90 days (term loans) |
| SMA-0 / SMA-1 / SMA-2 | Overdue 1–30 / 31–60 / 61–90 days |
| CRILC reporting | Borrowers with aggregate exposure of ₹5 crore and above |
| Substandard | NPA for up to 12 months; provision 15% (25% if unsecured) |
| Doubtful | Substandard for 12 months; D1 25%, D2 40%, D3 100% of secured portion + 100% of unsecured |
| Loss | Uncollectible; 100% provision; should be written off |
| Standard asset provision | 0.40% generally; 0.25% farm, housing, SME; 1% CRE |
| GNPA ratio, March 2026 | 1.8% (FSR June 2026); 1.73% (government, Rajya Sabha) |
| GNPA ratio, March 2025 | 2.2% (Trend and Progress) / 2.3% (FSR); NNPA 0.5% |
| Peak GNPA ratio | 11.2% (annual accounts) / 11.6% (FSR), March 2018 |
| PCR, March 2025 | 76.3% (PSBs 78.5%, private banks 72.6%) |
| Slippage ratio | 1.4% in 2024-25; 1.2% in 2025-26 |
| Write-offs, 2024-25 | ₹1,57,563 crore |
| Recovery rates, 2024-25 | IBC 36.6%, SARFAESI 31.5%, DRTs 9.5%, Lok Adalats 2.4%; overall 18.0% |
| Twin balance sheet problem | Economic Survey 2016-17, Chapter 4 |
| Asset Quality Review | 2015, under Governor Raghuram Rajan |
| Prudential Framework | 7 June 2019; 30-day review, 180 days to resolve, extra 20% + 15% provisions |
| Compromise settlements and technical write-offs | Framework of 8 June 2023; 12-month cooling period |
| ECL provisioning | From 1 April 2027 (directions of 27 April 2026) |
Exam corner: what to remember
- NPA = overdue for more than 90 days; credit card NPA when the minimum due is unpaid for 90 days; crop loans by crop seasons (two for short-duration, one for long-duration crops).
- SMA-0, 1, 2 = 1–30, 31–60, 61–90 days overdue; reported to CRILC for exposures of ₹5 crore+.
- Classification by days and realisability: substandard (≤12 months), doubtful D1/D2/D3, loss.
- Provisions: 0.40% standard, 15% substandard, 25/40/100% on the secured part of D1/D2/D3, 100% loss.
- GNPA ratio = GNPA ÷ gross advances; NNPA ratio = (GNPA − provisions) ÷ net advances; PCR = provisions ÷ GNPA; slippage = fresh NPAs ÷ opening standard advances.
- Latest: GNPA 1.8% (March 2026), slippage 1.2% (2025-26); NNPA 0.5% and PCR 76.3% in March 2025.
- Twin balance sheet (Economic Survey 2016-17): over-leveraged firms + bad-loan-laden banks; PARA proposed; four Rs.
- AQR (2015) forced recognition; GNPA peaked in March 2018.
- 7 June 2019 framework: 30-day review, ICA (75% by value, 60% by number), 180 days, extra 20% then 15%.
- Recovery rates (2024-25): IBC 36.6% > SARFAESI 31.5% > DRTs 9.5% > Lok Adalats 2.4%. IBC = 52.4% of all recoveries.
- Technical write-off ≠ waiver; compromise settlement needs a 12-month cooling period before fresh loans.
- ECL from 1 April 2027; the 90-day rule stays.
Test yourself
Under RBI norms, a term loan is classified as a non-performing asset when interest or principal remains overdue for:
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Answer: (c) The 90-day norm applies to term loans; 61–90 days overdue is SMA-2, which is still a standard asset.
A loan account whose principal is overdue for 45 days is classified as:
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Answer: (b) SMA-1 covers 31–60 days overdue; SMA-0 is 1–30 days and SMA-2 is 61–90 days.
An asset becomes "doubtful" when it has remained in the substandard category for:
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Answer: (c) A substandard asset is an NPA for up to 12 months; after that it is doubtful (D1 for its first year as doubtful).
A secured loan of ₹20 crore has been in the D2 doubtful category for 18 months. The realisable value of the security is ₹15 crore. The minimum provision required is:
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Answer: (c) Unsecured portion ₹5 crore at 100% = ₹5 crore; secured portion ₹15 crore at 40% (D2) = ₹6 crore; total ₹11 crore.
A bank has gross NPAs of ₹8,000 crore, provisions against NPAs of ₹6,000 crore and gross advances of ₹4,00,000 crore. Its net NPA ratio is approximately:
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Answer: (a) Net NPAs = 8,000 − 6,000 = ₹2,000 crore; net advances = 4,00,000 − 6,000 = ₹3,94,000 crore; 2,000 ÷ 3,94,000 = 0.51%.
According to the RBI's Financial Stability Report of June 2026, the gross NPA ratio of scheduled commercial banks at end-March 2026 was:
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Answer: (d) The June 2026 FSR put it at 1.8%, a multi-decadal low; 2.3% was the FSR figure for March 2025.
According to the RBI's Report on Trend and Progress of Banking in India 2024-25, which recovery channel had the highest recovery rate in 2024-25?
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Answer: (d) The IBC recovered 36.6% of the amount involved, ahead of SARFAESI (31.5%), DRTs (9.5%) and Lok Adalats (2.4%).
The term "twin balance sheet problem" was popularised by:
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Answer: (b) Chapter 4 of the Economic Survey 2016-17 described over-leveraged companies and bad-loan-encumbered banks and proposed a PARA.
Under the RBI's Prudential Framework for Resolution of Stressed Assets (7 June 2019), lenders must review a defaulted borrower's account within:
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Answer: (a) The review period is 30 days; the resolution plan must then be implemented within 180 days, or lenders make an additional 20% provision.
Which statement about a technical write-off is correct?
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Answer: (b) Under the 8 June 2023 framework, a technical write-off involves no waiver of the claim and does not stop recovery.
Further reading
- RBI, Report on Trend and Progress of Banking in India 2024-25: Chapter IV has the NPA movement table, classification of loan assets, SMA trends, recovery channels and ARC data; the best single source for this topic.
- RBI, Commercial Banks – Income Recognition, Asset Classification and Provisioning Directions, 2025: the rulebook itself, with the definitions, provisioning rates and worked illustrations of day-end classification.
- RBI, Prudential Framework for Resolution of Stressed Assets, 7 June 2019: the SMA table, the 30-day review, the inter-creditor agreement and the extra-provision rules in their original form.
- RBI, Framework for Compromise Settlements and Technical Write-offs, 8 June 2023: short and clear on the difference between a write-off and a waiver.
- Economic Survey 2016-17, Chapter 4: The Festering Twin Balance Sheet Problem: the classic account of how India's bad-loan crisis built up and why it was hard to fix.
- RBI, Financial Stability Report, June 2026: the latest GNPA, slippage and stress-test projections.
- Viral V. Acharya, Quest for Restoring Financial Stability in India (SAGE, 2020): a former Deputy Governor's account of the AQR, the February 2018 circular, PCA and the IBC.
Sources
- RBI, Report on Trend and Progress of Banking in India 2024-25, Chapter IV: Commercial Banks: GNPA 2.2% and NNPA 0.5% (March 2025); GNPA 2.1% and NNPA 0.5% (September 2025); Table IV.9 NPA movement, write-offs of ₹1,57,563 crore, 42.8% from recoveries and upgrades; PCR 76.3% (PSBs 78.5%, PVBs 72.6%), 76.0% in September 2025; slippage 1.4% and 1.3%; Table IV.11 recovery channels for 2023-24 and 2024-25; IBC share 52.4%; realisable value 170.1% of liquidation value; ARC data (accessed 24 October 2026)
- RBI press release, Report on Trend and Progress of Banking in India 2024-25, 29 December 2025: release date and headline asset quality (accessed 24 October 2026)
- RBI, Trend and Progress reports 2016-17 to 2023-24, Operations and Performance of Commercial Banks (2016-17, 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24): GNPA and NNPA ratios for March 2016 to March 2024; GNPAs of ₹10,39,679 crore in March 2018 (PSBs ₹8,95,601 crore, PSB GNPA ratio 14.6%); write-offs by year; PCR 66.2% (March 2020), 76.2% (March 2024, up 210 bp); PCR above 52% in H1 2018-19 and 61% in September 2019 (accessed 24 October 2026)
- RBI, Trend and Progress 2015-16, Operations and Performance of Scheduled Commercial Banks: PSB return on assets of −0.20% and losses in 2015-16 (accessed 24 October 2026)
- RBI, Handbook of Statistics on the Indian Economy, Table: Gross and Net NPAs of Scheduled Commercial Banks – Bank Group-wise: GNPA 4.3% and NNPA 2.4% in March 2015 (accessed 24 October 2026)
- RBI, Commercial Banks – Income Recognition, Asset Classification and Provisioning Directions, 2025 (updated 1 October 2026): NPA definition and criteria; out-of-order accounts; day-end classification and the SMA/NPA illustration; upgrade rules; substandard, doubtful and loss definitions; erosion of security (50% and 10%); provisioning rates; PCR definition; accrual only on standard assets (accessed 24 October 2026)
- RBI, Master Directions page: Resolution of Stressed Assets Directions, 2025 (28 November 2025) and Asset Classification, Provisioning and Income Recognition Directions, 2026 (27 April 2026) (accessed 24 October 2026)
- RBI, Prudential Framework for Resolution of Stressed Assets, 7 June 2019: applicability; SMA table; CRILC at ₹50 million; 30-day review; ICA at 75% by value and 60% by number; reference dates for ₹2,000 crore and ₹1,500 crore; 180 days; additional provisions of 20% and 15%; reversal rules; withdrawal of CDR, SDR, S4A and JLF (accessed 24 October 2026)
- RBI, Framework for Compromise Settlements and Technical Write-offs, 8 June 2023: definitions of technical write-off and compromise settlement; three-month rule; cooling period of at least 12 months; Board approval for fraud and wilful defaulter cases (accessed 24 October 2026)
- Economic Survey 2016-17, Chapter 4: twin balance sheet problem; February 2016 results; AQR and March 2016 deadline; IC1 companies near 40% of debt; total stressed assets of 16.6% (nearly 20% at PSBs); PARA; four Rs (accessed 24 October 2026)
- RBI press release, FSR July 2021: PCR of 68.86% in March 2021 (accessed 24 October 2026)
- RBI press release, FSR June 2024 and FSR June 2018: GNPA 2.8% and NNPA 0.6% in March 2024 (FSR series); GNPA 11.6% in March 2018 (accessed 24 October 2026)
- RBI press release, FSR December 2025, 31 December 2025: banks' health sound, improved asset quality (accessed 24 October 2026)
- RBI press release, FSR June 2026, 30 June 2026 and OneFin, July 2026: GNPA 1.8% in March 2026, slippage 1.2% in 2025-26 (accessed 24 October 2026)
- ELP, Financial Stability Report June 2026: some important takeaways: GNPA 1.8%, multi-decadal low (accessed 24 October 2026)
- The Tribune (ANI), 21 July 2026: Rajya Sabha reply; GNPA 1.73% in March 2026 and 2.75% in March 2024; bank-group NPAs in March 2021 and March 2026 (accessed 24 October 2026)
- RBI, Regulation of Banks and NBFCs (Part 18 of this series): ECL final directions of 27 April 2026, effective 1 April 2027, transition to 31 March 2031 (accessed 24 October 2026)