On 28 July 2026, the government reported that Public Sector Banks (PSBs) had achieved a historic low gross NPA ratio of 1.9% in FY 2025-26, alongside their highest-ever net profit (₹1.98 lakh crore) and aggregate business crossing ₹283 lakh crore. For a CDS/OTA aspirant, banking and NPAs are among the most reliably examined economy topics — testing definitions, the RBI's role, and the recovery framework.
The news in one frame
The essentials:
- What: PSB gross NPAs at ~1.9% — a multi-decade low — in FY 2025-26.
- Profit: highest-ever net profit of about ₹1.98 lakh crore; total business over ₹283 lakh crore.
- Credit growth: strong lending to MSMEs (~19.6%) and retail (~19.8%).
- Concept: an NPA is a loan overdue beyond 90 days.
What is a Non-Performing Asset?
Start with the core definition. A bank's assets are its loans (money lent earns interest — that is its income). A Non-Performing Asset (NPA) is a loan that has stopped earning for the bank:
- Under RBI norms, a loan becomes an NPA when interest or principal remains overdue for more than 90 days.
- Gross NPA (GNPA) = the total value of bad loans; Net NPA (NNPA) = GNPA minus provisions the bank has already set aside — the "real" residual risk.
- NPAs are classified as sub-standard (NPA for up to 12 months), doubtful (over 12 months) and loss assets (unrecoverable, to be written off).
High NPAs hurt profits, shrink lending capacity, and threaten financial stability — which is why a fall to 1.9% matters. This banking framework is exactly what the CDS/OTA notes on the banking sector build.
India's banking structure
The examinable institutional map:
- The Reserve Bank of India (RBI, established 1935) is the central bank — it issues currency, sets monetary policy (repo rate), regulates and supervises banks, and manages foreign-exchange reserves.
- Public Sector Banks (PSBs) — majority government-owned (SBI, PNB, Bank of Baroda, etc.). Banks were nationalised in 1969 (14 banks) and 1980 (6 more); PSBs have since been consolidated through mergers.
- Other categories: private banks, foreign banks, Regional Rural Banks (RRBs, 1975), cooperative banks, Small Finance Banks and Payments Banks.
- The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures deposits (currently up to ₹5 lakh per depositor per bank).
These themes recur in the CDS/OTA daily current affairs.
How India tackled the NPA problem
The examinable reform toolkit:
- Asset Quality Review (AQR, 2015) — the RBI forced banks to recognise hidden bad loans honestly (NPAs spiked, then fell as they were resolved).
- Insolvency and Bankruptcy Code (IBC), 2016 — a time-bound process to resolve or liquidate defaulting companies (adjudicated by the NCLT) — a game-changer for recovery.
- SARFAESI Act, 2002 — lets banks seize and auction secured assets of defaulters without court intervention.
- Recapitalisation — the government infused capital into PSBs to strengthen their balance sheets; plus the 4R strategy — Recognition, Resolution, Recapitalisation and Reforms.
- Bad bank (NARCL) — the National Asset Reconstruction Company to take over legacy stressed assets.
Why healthy banks matter
Round out with the economic logic:
- Credit is the fuel of growth: healthy banks can lend more to industry, MSMEs, agriculture and households — powering investment and jobs.
- Financial stability: low NPAs and strong capital protect depositors' money and the wider economy.
- Fiscal relief: profitable PSBs pay dividends instead of needing government bailouts.
- Financial inclusion: stronger banks can better serve Jan Dhan accounts, DBT and priority-sector lending.
Why it matters
For the essay/interview and bigger picture:
- Confidence: a clean banking system attracts investment and supports the rupee.
- Reform success: the NPA turnaround shows the value of honest recognition + legal reform (IBC).
- Inclusive credit: strong growth in MSME and retail lending spreads credit widely.
🔑 Revision block
The headline numbers, reported 28 July 2026. Public Sector Banks' gross NPA ratio at a multi-decade low of 1.9% in FY 2025-26 · highest-ever net profit ₹1.98 lakh crore · aggregate business over ₹283 lakh crore · credit growth of about 19.6% to MSMEs and 19.8% in retail.
The definition. A Non-Performing Asset is a loan whose interest or principal is overdue beyond 90 days under RBI norms — it has stopped earning for the bank.
Gross versus net. GNPA is the total value of bad loans · NNPA is GNPA minus provisions already set aside, the residual risk that actually bites.
The three classes. Sub-standard — NPA up to 12 months · doubtful — beyond 12 months · loss — unrecoverable, to be written off.
The regulator and the map. Reserve Bank of India (established 1935) — central bank and banking regulator; issues currency, sets the repo rate, manages forex reserves. Banks were nationalised in 1969 (14) and 1980 (6 more); alongside PSBs sit private, foreign, Regional Rural Banks (1975), cooperative, Small Finance and Payments Banks. DICGC insures deposits up to ₹5 lakh per depositor per bank.
The 4R toolkit — Recognition, Resolution, Recapitalisation, Reforms. Asset Quality Review (2015) forced honest recognition → Insolvency and Bankruptcy Code, 2016, time-bound resolution through the NCLT → SARFAESI Act, 2002, seizure and auction of secured assets without going to court → government recapitalisation → NARCL, the "bad bank," for legacy stressed assets.
The judgement to carry. The turnaround is real, but it began with admitting the bad loans — recognition before rescue.
🎯 Practice MCQs
Q1. A loan becomes an NPA when overdue for more than: (a) 90 days (b) 30 days (c) 1 year (d) 5 years → (a) — 90 days (RBI norm).
Q2. "GNPA" stands for: (a) Gross Non-Performing Assets (b) Government National Profit Account (c) Gross National Product Adjusted (d) General NPA → (a) — Gross Non-Performing Assets.
Q3. Net NPA is Gross NPA minus: (a) provisions made by the bank (b) deposits (c) profits (d) taxes → (a) — provisions.
Q4. India's central bank and banking regulator is the: (a) RBI (b) SEBI (c) SBI (d) NABARD → (a) — the Reserve Bank of India.
Q5. The RBI was established in: (a) 1935 (b) 1947 (c) 1969 (d) 1991 → (a) — 1935.
Q6. Major bank nationalisation in India took place in: (a) 1969 and 1980 (b) 1947 only (c) 1991 (d) 2016 → (a) — 1969 (14 banks) and 1980 (6 banks).
Q7. The law for time-bound resolution of insolvency is the: (a) IBC, 2016 (b) SARFAESI, 2002 (c) RTI, 2005 (d) FEMA, 1999 → (a) — the Insolvency and Bankruptcy Code.
Q8. IBC cases for companies are adjudicated by the: (a) NCLT (b) Supreme Court only (c) RBI (d) SEBI → (a) — the National Company Law Tribunal.
Q9. The Act letting banks seize secured assets without court action is: (a) SARFAESI, 2002 (b) IBC, 2016 (c) Companies Act (d) IPC → (a) — the SARFAESI Act.
Q10. An NPA classified as non-performing for over 12 months is: (a) doubtful (b) sub-standard (c) standard (d) loss only → (a) — a doubtful asset.
Q11. Bank deposits in India are insured (by DICGC) up to: (a) ₹5 lakh (b) ₹1 lakh (c) ₹10 lakh (d) unlimited → (a) — ₹5 lakh per depositor per bank.
Q12. The RBI's 2015 exercise forcing honest NPA recognition was the: (a) Asset Quality Review (b) demonetisation (c) GST rollout (d) census → (a) — the Asset Quality Review.
Q13. The "bad bank" set up to take over stressed assets is: (a) NARCL (b) NABARD (c) SIDBI (d) EXIM Bank → (a) — the National Asset Reconstruction Company Ltd.
Q14. High NPAs hurt banks mainly by: (a) reducing profits and lending capacity (b) raising deposits (c) cutting taxes (d) helping borrowers → (a) — eroding profitability and the ability to lend.
Q15. PSB gross NPAs in FY 2025-26 fell to about: (a) 1.9% (b) 15% (c) 25% (d) 0% → (a) — around 1.9% (a multi-decade low).
Q16. The RBI's key policy rate at which it lends to banks is the: (a) repo rate (b) exchange rate (c) tax rate (d) tariff → (a) — the repo rate.
Q17. The "4R" strategy for banking reform stands for Recognition, Resolution, Recapitalisation and: (a) Reforms (b) Refunds (c) Rebates (d) Retirement → (a) — Reforms.
Q18. Which body regulates the securities market (not banks)? (a) SEBI (b) RBI (c) IRDAI (d) PFRDA → (a) — the Securities and Exchange Board of India.
📋 How this gets asked (PYQ pattern)
Banking is a high-frequency CDS/OTA economy set. The reliable framings are the NPA definition (90 days), GNPA vs NNPA, RBI's role and the 1969/1980 nationalisations, and the recovery laws (SARFAESI 2002, IBC 2016). A common trap gives the NPA threshold as 30 days or one year, or confuses SARFAESI with the IBC. The fresh 2026 hook is PSB GNPA at a historic 1.9% — ideal for "which threshold / which law / which body" items. We reference the pattern, not any exact past question.
Preparing for CDS or OTA? Banking, NPAs and financial reform are high-yield economy topics and strong essay material on financial stability. Follow our daily CDS/OTA current affairs and train with serving-officer faculty in the upcoming Cavalier courses in Delhi.
✍️ Written by Aditya Tiwari — Economy & current-affairs faculty at The Cavalier. Reviewed by the Cavalier Faculty Desk. The Cavalier, founded by ex-Army officers, has trained NDA/CDS/SSB aspirants since 2001 (Facebook · YouTube).
Source: PIB / Ministry of Finance (Dept of Financial Services), 28 July 2026. Facts cross-verified with independent sources.