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Indian Banks' Bad Loans Hit Decade Low Amid Concerns
5 Jan
Summary
- Gross NPAs fell to a decadal low of 2.1% by September 2025.
- SMA-2 ratio for unsecured retail lending remains a concern at 13%.
- MSME sector shows improved asset quality with a 5.1% SMA ratio.
Asset quality across India's banking system has seen notable improvement, with gross non-performing assets (GNPAs) declining to a decadal low of 2.1% as of end-September 2025. Data from the Reserve Bank of India indicates a reduction in stressed assets across various borrower segments. The special mention accounts overdue by 61-90 days (SMA-2) for Micro, Small, and Medium Enterprises (MSMEs) eased to 5.1%, suggesting a healthier financial standing for this sector.
Despite the overall positive trend, unsecured retail lending remains an area requiring close attention. While stress in this segment has moderated from over 20% to 13% (SMA-2 ratio) compared to a year prior, it still represents a potential risk. Fresh stress formation among large borrowers has also improved, with their SMA-2 ratio declining substantially, reversing a previous increase.
Lenders are observing better monthly collection efficiencies, particularly in microfinance. However, specific pockets like micro-loans against property (micro-LAP), commercial vehicles, and affordable housing continue to exhibit stress. Banks are expected to maintain contained credit costs, with select mid-sized lenders focusing on mitigating risks in their unsecured and microfinance portfolios.
