The asset quality of Scheduled Commercial Banks (SCBs) has shown a marked and sustained improvement, according to the Economic Survey 2025-26 tabled in Parliament by Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman.
The Survey notes that both the Gross Non-Performing Asset (GNPA) ratio and Net NPA ratio have declined to multi-decadal and record-low levels, respectively. At the same time, the Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs remained strong at 17.2 per cent as of September 2025, reflecting enhanced balance-sheet resilience across the banking system.
Importantly, the recovery rate of NPAs has nearly doubled, rising from 13.2 per cent in FY 2017-18 to 26.2 per cent in FY 2024-25, supported by stronger recoveries under the Insolvency and Bankruptcy Code (IBC).
MSME Credit Expansion Driven by Digital Reforms
The Survey highlights that bank credit to the MSME sector continues to grow robustly, aided by measures announced in the Union Budget 2025-26, including expanded credit guarantees, the introduction of credit cards for micro-enterprises, and upward revisions in MSME investment and turnover thresholds.
Public Sector Banks (PSBs) launched a Credit Assessment Model (CAM) in 2025 to enable digital, objective, and automated loan appraisal for MSMEs using verifiable digital data. Between 1 April and 30 November 2025, PSBs sanctioned loans worth over ₹41.5 thousand crore against ₹3.2 lakh crore MSME loan applications under CAM-based credit programmes.
The CAM framework integrates credit guarantee mechanisms such as CGTMSE, improving ease of doing business while expanding access to formal credit for both new and existing MSME borrowers.
Regional Rural Banks Show Strong Financial Turnaround
The Survey notes that the government’s One State – One RRB consolidation initiative has significantly strengthened the operational and financial performance of Regional Rural Banks (RRBs). The number of RRBs was reduced from 196 to 28 by May 2025, accompanied by the integration of core banking and IT systems.
As a result, RRBs recorded a historic consolidated net profit of ₹7.6 thousand crore in FY 2023-24, followed by the second-highest profit of ₹6.8 thousand crore in FY 2024-25. RRBs have consistently exceeded the 75 per cent priority sector lending target, reaffirming their role in advancing rural credit and financial inclusion.
Stronger Regulatory Framework and Responsible Innovation
The Survey underscores the Reserve Bank of India’s (RBI) efforts to enhance regulatory clarity and efficiency through the consolidation and reorganisation of regulatory instructions. Similar harmonisation exercises were undertaken for cooperative banks in consultation with NABARD.
To institutionalise regulatory accountability, the RBI established a Regulatory Review Cell, operational from 1 October 2025, mandated to review every regulation every five to seven years.
In parallel, RBI introduced principle-based guidance on Artificial Intelligence, including a Free AI framework that promotes innovation while ensuring consumer protection, transparency, and sound risk management.
Microfinance Sector Expands Reach and Inclusion
The microfinance sector, which serves 95 per cent women borrowers and 80 per cent rural clients, has witnessed steady expansion. Active borrowers nearly doubled from 330 lakh in FY 2013-14 to 627 lakh in FY 2024-25.
Over the same period, the gross loan portfolio of MFIs grew nearly seven-fold, rising from ₹33,517 crore to ₹2.38 lakh crore, while branch networks expanded from 11,687 to 37,380 branches. The Survey emphasises the need for responsible lending practices, stronger credit assessment tools, and institutional resilience to manage cyclical risks.
Financial Inclusion: Structural Gains and Digital Momentum
India’s financial inclusion efforts have delivered transformative results over the past decade. Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), 55.02 crore bank accounts had been opened as of March 2025, including 36.63 crore accounts in rural and semi-urban areas.
Complementary schemes such as PM Mudra Yojana, Stand-Up India, and PM SVANidhi have expanded access to institutional credit for micro-entrepreneurs, women, SC/ST borrowers, and street vendors.
These initiatives helped increase adult bank account ownership from 35 per cent in 2011 to 89 per cent in 2021. The success of the Unified Payments Interface (UPI) has further accelerated digital financial inclusion nationwide.
Reflecting these gains, the RBI’s Financial Inclusion Index rose to 67.0 in March 2025, up from 64.2 in March 2024, with steady improvement across all components.
Insolvency and Bankruptcy Code Delivers Stronger Recoveries
The Insolvency and Bankruptcy Code (IBC) has established a unified, time-bound framework for resolving corporate distress. From nearly 1,300 resolved cases, creditors realised ₹3.99 lakh crore, recovering 94 per cent of the fair value and 170 per cent of liquidation value.
Resolution timelines have shortened sharply, from 6-8 years under the pre-IBC regime to around 2 years. Recognising these improvements, S&P Global Ratings upgraded India’s insolvency regime from ‘Group C’ to ‘Group B’ in December 2025, citing improved recovery outcomes, stronger creditor rights, and judicial reinforcement.
Conclusion
The Economic Survey 2025-26 concludes that India’s banking and financial system has entered a phase of structural strength, characterised by improved asset quality, higher recovery rates, expanding credit to MSMEs, deeper financial inclusion, and a modernised regulatory framework. Together, these reforms have enhanced the resilience, efficiency, and credibility of India’s financial ecosystem. (Source: PIB PR ID 2220002)
Economic Survey of India 2025-26 dated 29/01/2026