After a lending boom, Indian banks were crushed by bad loans — gross NPAs hit 11.2% in 2018. A clean-up followed: the 2016 Insolvency & Bankruptcy Code, big capital injections, and the merger of public-sector banks from 27 into 12.
Banking & Financial Reforms
Banking & Financial Reforms
A decade ago Indian banks were buried under bad loans — gross non-performing assets (NPAs) peaked at 11.2% in 2018. A series of reforms turned it around: the Insolvency and Bankruptcy Code (2016) gave a fast way to recover dues, public-sector banks were recapitalised and merged from 27 into 12, and a 'bad bank' (NARCL) was set up. Gross NPAs fell to about 2.8% by 2024, a multi-year low, and banks returned to record profits. The counter shows the gross NPA ratio.
2.8%
Gross NPA (from 11.2% peak)
27 → 12
PSU banks after mergers
2016
IBC bankruptcy code
Gross bank NPA ratio
| Year | Gross bank NPA ratio |
|---|---|
| 2015 | 5 % |
| 2016 | 8 % |
| 2017 | 9 % |
| 2018 | 11 % |
| 2019 | 9 % |
| 2020 | 8 % |
| 2021 | 7 % |
| 2022 | 6 % |
| 2023 | 4 % |
| 2024 | 3 % |
| 2025 | 2 % |
2015
0%
Gross bank NPA ratio
20152025
Since 2015
Added
+-2 %
2015
5 %
2025
2 %
Why it matters Healthy banks can lend more for growth; the IBC also shifted the culture around defaulting — borrowers can now lose their company for not repaying.
- Gross NPA: 11.2% (2018 peak) → ~2.8% (2024)
- IBC (2016); PSU banks merged 27 → 12; record bank profits
- Source: Reserve Bank of India
History
The turnaround
Gross NPAs fell to a multi-year low of ~2.8% by 2024 and banks swung back to record profits. The IBC also changed borrower behaviour — promoters can now lose their company for not repaying — while UPI and digital lending widened access.
How it works
India's banking is anchored by big public-sector banks alongside strong private banks, all overseen by the RBI. The decade's central reform was cleaning up bad loans: the Insolvency and Bankruptcy Code (2016) created, for the first time, a fast, time-bound way to seize and resell the assets of defaulting companies — shifting power from defaulters to lenders. Weak public banks were also merged and recapitalised to make them stronger.
Outlook
The turnaround is real: banks' gross bad-loan ratio fell from a peak near 11-12% to under 3% — a multi-decade low — and public banks swung back to record profits. The next test is sustaining that discipline through the next credit cycle: keeping recoveries steady without choking lending to small businesses, and speeding up the insolvency courts, which have grown slow and clogged.
The road ahead
The next test is sustaining credit discipline through the next cycle — keeping IBC recoveries steady without choking lending to small businesses.
By the numbers
Gross NPA 11.2% (2018) → ~2.8% (2024); PSU banks 27 → 12; IBC (2016); record bank profits. Source: RBI.
Source: RBI — gross NPA ratio of scheduled commercial banks (%), 2015–2025.