RBI Report 2025: IBC Dominates Bad Loan Recoveries as India’s NPA Ratio Hits Record Low of 2.1%

The Insolvency and Bankruptcy Code (IBC) has officially cemented itself as the “heavy hitter” in India’s bad loan recovery game. As of Tuesday, December 30, 2025, the latest RBI Trend and Progress of Banking report reveals that IBC now handles over half of all bank recoveries.

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The thing is, we’re seeing a “quality over quantity” shift. Or nothing. Let’s be real, even though fewer cases were actually referred to the tribunals this year, the money coming back is higher. Those too. The system is getting leaner, focusing on bigger fish rather than just clogging the pipes with every small default.

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The Recovery Scorecard (FY25)

The power balance between different recovery laws has shifted significantly this year.

Why IBC is Winning

It’s an ongoing situation where the “threat” of IBC is often more effective than the law itself.

• The “Realizable Value” Bump: By September 2025, the value realized through IBC was 170.1% of the liquidation value. Basically, it’s proving that keeping a company alive (as a “going concern”) is much more profitable than just selling it for scrap parts.

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• Behavioral Shift: And here’s the kicker: over 30,000 cases were settled before they even reached the court this year. Debtors are so terrified of losing their companies under the “Creditor in Control” regime that they’re finding the money to pay up before the judge even bangs the gavel.

• ARC Clean-up: Banks are aggressively offloading the messiest NPAs to Asset Reconstruction Companies. Private and foreign banks are leading this charge, while public sector banks (PSBs) are actually slowing down their sales to ARCs to focus on internal recoveries.

The “New Face” of Banking

The result? India’s banking health is at a multi-decadal high.

1. GNPA at 2.1%: This is the lowest we’ve seen in roughly two decades.

2. Profitability Surge: Scheduled Commercial Banks hit a record net profit of ₹4.01 lakh crore in FY25.

3. The SARFAESI Factor: While it’s the “direct action” weapon for smaller secured loans, it’s seeing fewer cases as banks opt for the more structured IBC route for complex corporate defaults.

It’s an ongoing situation where the “defaulter’s paradise” is well and truly lost. If you owe a bank money in 2026, there’s almost nowhere left to hide.

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