India’s banking system continued its steady clean-up in 2024-25, extending a multi-year improvement in asset quality that began in 2018-19. By the end of March 2025, the Gross NPA (GNPA) ratio of scheduled commercial banks (SCBs) had fallen to a multi-decadal low of 2.2%, down from 2.7% a year earlier. This decline was powered significantly by public sector banks (PSBs), whose GNPA ratio dropped sharply from 3.5% to 2.6%, marking the most substantial improvement among bank groups. What drove the system-wide reduction process? Much of the system-wide reduction was driven by recoveries and upgradations, which together accounted for 42.8% of the GNPA decline. PSBs alone recovered Rs 33,630 crore and upgraded another Rs 13,847 crore, while also executing large write-offs to accelerate balance sheet cleansing. Their closing GNPA stock fell from Rs 3.39 lakh crore to Rs 2.83 lakh crore in just one year.