Banks bad loans decline sharply 9.5% y-o-y in Q1FY26, asset quality improves: Care Edge Report

New Delhi [India], August 22 (ANI): The gross non-performing assets (NPAs) of banks fell sharply in the first quarter of FY26, reflecting an improvement in overall asset quality, according to a report by Care Edge Ratings.

The report said that the gross NPA (GNPA) ratio also showed an improvement, falling to 2.3 per cent in Q1FY26 compared to 2.7 per cent a year ago.

It said "GNPA reduced by 9.5 per cent year-on-year (y-o-y) to Rs 4.18 lakh crore as of Q1FY26".

On the other hand, the net non-performing asset (NNPA) ratio remained stable at 0.5 per cent in Q1FY26 for the second consecutive quarter, against 0.6 per cent over a year ago. In absolute terms, NNPAs reduced by 8.7 per cent y-o-y to Rs 0.92 lakh crore as of the quarter.

However, sequentially, the picture was slightly different. The report pointed out that the quantum of GNPAs of SCBs rose by 0.5 per cent quarter-on-quarter (q-o-q), mainly due to higher incremental slippages and stress seen in the microfinance and unsecured loan segments at some banks.

Similarly, NNPAs also rose by 2.5 per cent q-o-q.

Looking at sectoral data, public sector banks (PSBs) showed a decline in GNPAs across all segments except agriculture.

The improvement was attributed to better asset quality, upgradation efforts, and stricter norms on retail lending. Within retail loans, stress was seen particularly in unsecured loans, education loans, and credit card receivables.

The report also highlighted the structural improvement in the banking sector's asset quality over the years. As of March 31, 2018, the NNPA ratio was as high as 6 per cent.

This has now fallen significantly to 0.5 per cent in Q1FY26, the lowest in the post-asset quality review (AQR) period, and has remained stable for the past two quarters.

According to the report, this turnaround has been driven by a combination of large-scale write-offs, sustained recoveries from old NPAs, higher provision coverage, and earlier resolutions under the Insolvency and Bankruptcy Code (IBC) 2016 framework.

While the overall asset quality remains strong, the report cautioned that the pace of fresh recoveries has slowed in recent quarters, as the pool of older stressed assets has already diminished. (ANI)

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