India’s banking sector has reached a milestone that would have appeared difficult to imagine a decade ago. In the June quarter of FY27, every listed Indian bank reported a net non-performing asset, or net NPA, below 1%.
This includes both private banks and public sector banks. The development reflects a major improvement in the quality of bank loans and the strength of bank balance sheets.
The significance of this change becomes clearer when compared with the situation during the previous decade. Indian banks were then facing a large burden of bad loans. Several companies had borrowed heavily but failed to repay their loans.
Banks had to set aside more money for possible losses, profitability was affected and fresh lending became difficult. The problem was especially serious among public sector banks, which carried a large share of stressed corporate loans.
Writing in Business Standard, banking expert Tamal Bandyopadhyay described the latest development as a rare milestone for the Indian banking industry. According to his analysis, all listed Indian banks, whether government-owned or privately owned, had net NPAs below 1% in Q1 FY27.
Net NPA shows the amount of bad loans left after deducting provisions made by a bank. A lower number generally indicates better protection against possible loan losses.
The data also shows that several banks had exceptionally clean loan books. Bank of Maharashtra recorded a net NPA ratio of only 0.13%, followed by Indian Bank at 0.15% and IDBI Bank at 0.16%. State Bank of India reported 0.38%, while HDFC Bank recorded 0.41%. These figures suggest that the improvement is not limited to one category of lenders.
The banking turnaround was supported by a series of structural reforms. The Asset Quality Review launched in 2015 required banks to identify and report hidden stress in their loan books. Before this exercise, some troubled loans were not being fully recognised. Once the actual problem became visible, banks could make provisions, recover dues and repair their balance sheets in a more transparent manner.
The Insolvency and Bankruptcy Code, introduced in 2016, created a formal process for resolving companies that could not repay their debts. It improved the possibility of recovering money from defaulters and also created greater credit discipline. Borrowers and lenders received a clearer framework for dealing with financial failure, reducing the possibility of endless delays.
Public sector bank recapitalisation also played an important role. Between 2015 and 2019, the government provided more than ₹3.19 lakh crore to strengthen the capital position of public sector banks. Stronger capital helped these banks absorb losses, meet regulatory requirements and gradually return to normal lending activity.
Bank consolidation added another layer of support. Several public sector banks were merged between 2017 and 2020, creating larger institutions with wider networks and stronger operational capacity. Alongside consolidation, the EASE reform programme focused on governance, responsible lending, risk management, technology and customer service. These measures helped make banking operations more disciplined and data-driven.
Motilal Oswal Financial Services, a brokerage and a private sector financial Institution has also described Indian banks as being in their best shape in a decade. Its assessment points to NPAs being close to historic lows, stronger capital buffers and healthier balance sheets. The firm noted that gross NPAs of scheduled commercial banks were around 1.8% in March 2026, while net NPAs were approximately 0.4%.
The two observations are closely connected. Tamal Bandyopadhyay highlights the rare fact that no listed bank crossed the 1% net NPA mark in Q1 FY27. Motilal Oswal looks at the wider banking system and underlines the improvement in capital, profitability and overall financial strength. Together, the views show that the banking recovery is not merely about lower bad loans; it is also about stronger institutions that are better prepared to support economic activity.
A healthier banking system creates more room for lending to households, farmers, small businesses and industries. It can support investment, consumption and infrastructure development without carrying the same level of stress seen in the past. However, the improvement should not lead to careless lending. Continuous monitoring, proper risk assessment and timely recognition of stress will remain necessary to protect the gains made over the last decade.
India’s banking story has therefore moved from hidden stress and weak balance sheets to transparency, recovery and resilience. Cleaner banks, stronger capital and better risk management can give the economy a more dependable financial foundation for the next phase of growth.
