Union Finance Minister Nirmala Sitharaman announced on Monday that non-performing assets (NPAs) in Indian banking have fallen to their lowest-ever level, marking a historic turnaround from the sector's previous crisis. Speaking at the Public Sector Banks Confluence 2026, Sitharaman emphasized that the banking sector has emerged from a prolonged period of stress with stronger balance sheets and significantly improved asset quality. As reported by Mint, the minister declared that there could not have been a better time to discuss banking for Viksit Bharat given the sector's recovery from difficulties. This announcement represents a significant milestone in India's banking sector recovery, with the improvement in asset quality having strengthened the financial position of lenders and created greater scope for undertaking structural reforms.
The latest data from the Reserve Bank of India's June 2026 Financial Stability Report confirms the historic improvement in banking sector asset quality. According to the RBI report, the gross NPA ratio of scheduled commercial banks fell to a multi-decadal low of 1.8% as of March 2026, down from 2.3% a year earlier. The improvement has been particularly pronounced among public sector banks, with the gross NPA ratio of PSBs declining to 1.93% at the end of March 2026, compared to 2.6% a year earlier and 7.3% in March 2022. Their net NPA ratio fell to 0.39%, also a historic low. This marks a significant reversal from the banking sector stress seen in the previous decade, when gross NPAs of scheduled commercial banks had risen to 11.18% in March 2018 before declining steadily following the RBI's Asset Quality Review and the government's '4Rs' strategy of recognition, resolution, recapitalisation and reforms.
While the overall banking sector has achieved record low NPAs, agriculture remains the most stressed sector with bad loan ratios above 6%, topping the list of stressed sectors despite some easing since FY22. According to Business Standard, industrial sector NPAs have declined dramatically from a peak of 20.29% in FY18 to just 1.96% in FY26, while services and retail loans maintain far lower ratios at 1.84% and 1.12% respectively in FY26. A notable trend emerges when comparing banks by ownership, as private banks now hold a higher share of bad debt in retail loans compared to public sector banks, which have consistently reported higher NPAs across all loan categories except retail. PSBs, the epicentre of the last decade's NPA stress, saw their bad-loan ratio touch nearly 15% in FY18, before declining to under 2% by FY26, while private banks' GNPAs now stand just behind PSBs despite never reaching the highs of their public sector counterparts over the decade.
Finance Minister Nirmala Sitharaman confirmed on 17 August that the Centre will soon constitute a high-level panel on 'Banking for Viksit Bharat', as was proposed in the Budget speech earlier this year. According to Mint, Sitharaman stated at the PSB Confluence 2026 that "We expect the announcement of the high-powered committee to look into the banking sector... soon the committee will be announced." The committee will submit its thoughts and recommendations to the government and will examine recommendations emerging from the conclave for its suggestions. As reported by Mint, the finance minister emphasized that bankers and other stakeholders are expected to play a key role in shaping the banking framework and next phase of reforms. The 'High Level Committee on Banking for Viksit Bharat' was proposed in February to conduct comprehensive review of the sector and align it with India's next phase of growth, while safeguarding financial stability, inclusion and consumer protection.
Sitharaman linked the timing of the confluence to an expected announcement of a high-powered committee on banking for a Viksit Bharat (Developed India). As reported by Mint, she said the outcomes of this meet would give that committee substantive material to work with as it frames recommendations on the sector's future role. The finance minister urged bank executives to move beyond broad declarations and submit workable recommendations that could be implemented by the institutions they lead. The proposed committee is expected to study how banks can mobilise more deposits, finance infrastructure and private investment, expand credit responsibly and respond to changing customer behaviour. With banks entering the reform debate from a position of strength rather than distress, the government wants the sector to focus on financing India's transformation without recreating the excesses of the previous credit cycle. The committee's mission is to determine the banking architecture India will need to achieve the Viksit Bharat 2047 target, with less than 20 years available before the 2047 target.
