From Forbearance to Recognition and Recovery: Phases of Asset Quality Stress in India’s Scheduled Commercial Banks, 1996–97 to 2024–25

Abstract : This study traces the evolution of asset quality in India's Scheduled Commercial Banks (SCBs) over almost three decades, using annual data on gross advances, gross and net non-performing assets (NPAs), and the loan-asset classification for 1996–97 to 2024–25. The study examines the Provision Coverage Ratio (PCR) and phase-wise compound annual growth rates (CAGR) of advances and stressed assets to identify the major phases of stress and recovery. It deals with five phases: post-reform clean-up (1997–2005), a deceptive calm during the credit boom (2005–2008), a silent build-up of stress (2008–2013), recognition and peak stress following the Asset Quality Review (2013–2018), and resolution and recovery (2018–2025). The gross NPA ratio rose from 2.2 percent in 2008–09 to 11.2 percent in 2017–18, then fell to 2.2 percent in 2024–25, while the PCR increased from 42.8 percent in 2015–16 to 77.9 percent. Stress was higher in doubtful assets, and its share in advances fell from 7.8 per cent to 1.0 per cent. The study underlines the importance of early recognition, adequate provisioning, timely recapitalisation and credible resolution mechanisms