The gross non-performing assets (NPAs) of banks fell sharply in the first quarter of FY26, which reflects an improvement in an improvement in total activa quality, according to a report from Care Edge Ratings.
The report said that the gross NPA (GNPA) ratio also showed an improvement, fell to 2.3 percent in Q1FY26 compared to 2.7 percent a year ago.
It stated: “GNPA reduced by 9.5 percent on an annual basis (yoj) to RS 4.18 Lakh Crore from Q1FY26”. On the other hand, the net non-performing asset (NNPA) Ratio remained stable with 0.5 percent in Q1FY26 for the second consecutive quarter, compared to 0.6 percent more than a year ago.
In absolute terms, NNPAs reduced by 8.7 percent JoJ to RS 0.92 Lakh Crore from the quarter. However, the photo was slightly different.
The report pointed out that the quantum of GNPAs of SCBs increased by 0.5 percent quarter to quarter (QOQ), mainly due to higher incremental slip and stress that is seen in the microfinance and unsecured loan segments in some banks.
Similarly, NNPAs also rose by 2.5 percent QoQ. Looking at sectoral data, banks in the public sector (PSBs) showed a decrease in GNPAs in all segments except agriculture.
The improvement was attributed to better activity quality, upgrade efforts and stricter standards for lending. Inside shopping loans, stress was seen in particular in uncovered loans, educational loans and credit card claims.
The report also emphasized the structural improvement of the activa quality of the banking sector over the years. From March 31, 2018, the NNPA ratio was as high as 6 percent.
This has now fallen considerably to 0.5 percent in Q1FY26, the lowest in the post-asset Quality Review (AQR) period, and has remained stable for the past two quarters.
According to the report, this turnaround is powered by a combination of large -scale depreciation, persistent recovery of old NPAs, coverage with higher facilities and earlier resolutions under the Insolvency and Bankrescy Code (IBC) 2016 Framework.
Although the overall power quality remains strong, the report warned that the pace of fresh recovery has been delayed in the past quarters, because the pool of older stressed assets has already decreased.
Published on August 22, 2025
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