By March 2025, public sector banks reported gross bad loans equivalent to 2.58% of their advances, down from 9.11% four years earlier. Their combined net profit reached about ₹1.78 lakh crore in 2024–25, according to a government review. The banks’ published position had improved substantially. Explaining that improvement requires following both the money put into the system and the losses taken out of its books. [1]
First, recognise the damage
The cleanup initially made the reported problem look worse. The Reserve Bank of India’s 2015 Asset Quality Review required banks to recognise stress that had been obscured by earlier treatment of restructured loans. Reclassification exposed more non-performing assets and required provisions against expected losses. A higher reported bad-loan figure could therefore reflect more honest recognition, rather than an equivalent burst of fresh defaults. [2]
The government’s response combined recognition, resolution, recapitalisation and changes in bank practices. RBI’s supervisory role and the Union government’s role as owner and policymaker were distinct parts of the exercise. It was a process extending over years, not a single rescue announced in 2019. [2] [3]
In July 2019, the finance ministry told Parliament that public banks had received ₹3.12 lakh crore in recapitalisation over the preceding four financial years. Of that, ₹2.46 lakh crore came from government infusions; the banks mobilised more than ₹0.66 lakh crore themselves. Calling the entire amount a government payment would overstate the public contribution. Calling recapitalisation a loan recovery would confuse two different transactions. [3]
What disappeared from the balance sheet
A later parliamentary answer supplied another essential figure: public banks wrote off ₹12,08,828 crore of loans between 2015–16 and 2024–25, on provisional RBI data. That ten-year cumulative flow cannot be directly compared with the stock of bad loans outstanding on one particular date. [4]
A write-off is also not automatically a waiver. The ministry said borrowers remained liable and banks continued recovery proceedings. Equally, retaining a legal claim does not mean the money has been collected. Neither description should conceal the distinction between an accounting entry and cash returned to a bank. [4]
The next loan matters too
Bad-loan ratios measure outstanding non-performing loans against advances. Recoveries, write-offs and changes in the size of the loan book can all affect that ratio. A lower percentage alone cannot allocate credit among them.
The 2019 reply described tighter appraisal and monitoring practices, but also recorded a limit: RBI did not maintain the requested data on advances by disbursement date or on stress accruing in particular periods. Sweeping claims assigning every bad loan to one political tenure go beyond that record. [3]
The repaired balance sheets leave banks better placed to lend. Whether that repair lasts will depend on the quality of the next loans as much as the handling of the old ones.