New Delhi, Jan 29 (NationPress) There has been a remarkable enhancement in the asset quality of scheduled commercial banks, highlighted by a substantial drop in the proportion of bad loans and increased recoveries, as reported in the Economic Survey 2025-26, presented in Parliament by Finance Minister Nirmala Sitharaman on Thursday.

It emphasizes that the gross non-performing asset (GNPA) ratio and net NPA ratio have hit multi-decadal lows, while the capital-to-risk-weighted-asset ratio (CRAR) of banks stands strong at 17.2 percent (as of September 2025).

Moreover, the recovery rate for NPAs in banks has nearly doubled from 13.2 percent in FY18 to 26.2 percent in FY25. The recovery rate through the Insolvency and Bankruptcy Code, 2016 (IBC Code) has also seen significant improvements, according to the survey.

The government has undertaken various strategies to optimize resources and boost the performance of regional rural banks (RRBs). In FY24, these banks achieved a historic consolidated net profit of Rs 7,600 crore, followed by the second-highest consolidated net profit of Rs 6,800 crore in FY25.

The consolidation process was executed in four phases based on the One-State-One-RRB principle, reducing their number from 196 to 28 as of May 1, 2025. Additionally, the integration of Core Banking Solutions and other IT systems of the merged RRBs into unified platforms has been undertaken.

Notably, RRBs have consistently surpassed the priority sector lending target of 75 percent of their adjusted net bank credit over the years, showcasing their dedication to fulfilling their foundational goals.

The measures introduced in the Union Budget 2025-26, including a significant increase in credit availability with guarantee cover for MSMEs, the introduction of credit cards for micro-enterprises, and more, have also positively impacted the sector.

The revision in MSMEs classification, with substantial increases in investment limits and turnover thresholds, has contributed to this impressive growth. Bank credit to the MSME sector remains robust, as stated in the survey.

Key policy actions in the banking sector include the launch of a credit assessment model (CAM) based on digital footprints for MSMEs in 2025. The Economic Survey notes that between April 1 and November 30, 2025, over Rs 3.2 lakh crore in MSME loan applications, totaling more than Rs 41,500 crore, have been approved by public sector banks (PSBs) under the CAM credit programs.

This MSME model will utilize digitally obtained and verifiable data to facilitate automated loan appraisal for MSMEs, employing objective decision-making for all loan applications and model-based limit assessment for both existing and new MSME borrowers. This not only enhances the ease of doing business for MSMEs but also integrates credit guarantee schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

The RBI has also initiated a major reorganization of its regulatory guidelines, marking a transformative shift in its regulatory communications. Furthermore, instructions issued by NABARD to RRBs, State Cooperative Banks, and Central Cooperative Banks were consolidated in consultation with NABARD, the survey added.