A case study about India’s banking resurrection has shown how Indian banking system has seen decisive reform, transparency, and perseverance. This study also explains this transformation brilliantly, framing it as one of India’s finest examples of reform-driven success.
The study on the banking reforms in India was shared on X by @indian_matrix account.
In 2018, India's banking sector was on the verge of collapse. NPAs had hit 11.2% – the worst crisis since independence.
— The Matrix (@indian_matrix) November 7, 2025
However, by 2024, NPAs had dropped to 2.6% – a 12-year low. Banks recorded a profit of ₹3.1 lakh crore.
🧵How did India pull off this remarkable turnaround?… pic.twitter.com/F4LyIZ9Htt
Once on the verge of failure in 2018 and now making record profits in 2024, India’s banking comeback is definitely a lesson to learn from in terms of reforming, being transparent, and not giving up.
So, what was the condition of Indian banks back in 2018? The fact of the matter is that they were close to falling apart, with Non-Performing Assets (NPAs) going up to 11.2% that was a sector crisis of the worst kind since India had been independent, causing the trust to be shaken, credit growth to stop, and profits to change into losses.
How did it come about? Was it a sudden thing or something that happened years ago? The causes can be traced to a very long time ago. Before 1991, banks were operating in the dark – there weren’t any clear rules for loan classifications, nor provisions, or accountability. Banks were pressured to lend for political reasons rather than for financial reasons. That is the reason why NPAs were as high as 17.8% in the ’90s. The Narasimham Committee in 1991 was the first step in India in bringing capital adequacy, asset classification, and provisioning standards – similar to setting up an accounting system in a previously unaccounted business.
Did reforms make things better after 1991? Yes, indeed. In the Vajpayee government period (1998–2004), many important legislations such as the SARFAESI Act enabling banks to regain assets without getting into court conflicts were implemented. Debt Recovery Tribunals as well as Asset Reconstruction Companies came into being thus NPAs went down considerably to 5.4%. Banking got stronger – however, there were still some dark clouds on the horizon.
What had gone wrong in the time after? From 2003 to 2008 the Indian economy was flourishing. Banks generously gave loans to industries like infrastructure, steel, and telecom. Nevertheless, in most cases, loans were approved without proper checks – a practice called “phone banking” wherein you used to receive a call from your benefactor asking for a favor and thus political influence would be the one to decide rather than financial analysis. When the 2008 global crisis came, there were failures of many projects while at the same time banks were hiding their losses by “evergreening,” i.e., extending bad loans to disguise their financial health.
Why were banks so reluctant to expose their faultiness? For quite some years, regulators turned a blind eye thus banks took advantage of that to conceal their bad loans. Officially, NPAs were reported at only 5%, while real stressed assets were beyond 12%. It was like a time bomb.
When did the situation start changing? The change of the tide was felt in 2015 when the Reserve Bank of India Asset Quality Review (AQR) was implemented and supported by the Government of Prime Minister Modi. It compelled banks to provide an unvarnished report of all the loans that were under stress. The NPA figures, which were tripled, from ₹3.2 lakh crore in 2015 to ₹10.3 lakh crore in 2018, were not indicating new bad loans but years’ old hidden stress getting unveiled.
How was this grim truth turned into recovery? Recognition, Resolution, Recitalisation, and Reforms were the components of the government’s 4R strategy. Recognition was the act of realizing the problem’s entirety. Resolution was mainly through the Insolvency and Bankruptcy Code (IBC) in 2016, which allowed for quick, market, and customer-oriented recovery thus giving creditors more power and reducing the time period for recovery.
Was recapitalization necessary? Extremely. Banks had made losses, but they lacked the capital to continue lending or to cushion against shocks. A total of ₹3.1 lakh crore was pumped into them to stabilize things between 2016 and 2021.
What reforms came after? The merger of several Public Sector Banks reduced the number from 27 to 12, thus, increasing the banks’ size and strength, and at the same time no workers were laid off. The implementation of the Fugitive Economic Offenders Act, among other laws, prevented defaulting individuals from evading legal actions. Enforcement agencies zealously tackled fraud issues, thus, bringing to the fore the much-needed accountability which the banking sector had never before witnessed.
The result of all these efforts, what was it? By 2024, NPAs had dipped to their lowest point in 12 years at 2.6%, net NPAs got down to 0.6%, and banks made record profits of ₹3.1 lakh crore. India’s banking system underwent a transformation to one of the strongest financially and fastest recovering among the world’s banking systems.
What lessons can we draw from this experience? First and foremost, openness is the cornerstone of recovery – refusal only prolongs the disease. Along with transparency, the implementation of laws and accountability should go before any growth and lending take place. Fourth, autonomy accompanied by supervision guarantees that institutions will serve the public good rather than be used for the benefit of certain political groups. And finally, reforms require not only continuity between different governments but also strong enough to last beyond their time in power.
India’s banking turnaround wasn’t an overnight miracle—it was the culmination of three decades of reform, political will, and economic realism. From the Narasimham blueprint to the Modi government’s 4R execution, this journey reflects an uncommon consistency in policymaking.What began as a crisis of credibility has transformed into a chapter of confidence. India’s banking system stands not just repaired, but reimagined—a symbol of what determined governance and structural integrity can achieve.
