The global economy continued to witness subdued growth momentum in advanced economies, alongside persistent geopolitical uncertainties and trade- related measures. Notwithstanding these challenges, India remained among the fastest-growing major economies, supported by strong investment activity, recovery in private consumption, and enabling government policies. Inflationary pressures moderated during the year, though they remained above long-term averages and influenced monetary policy actions globally.

India’s real GDP growth remained robust, driven by healthy performance in construction, manufacturing, and financial services, together with sustained credit growth in the banking sector.

In terms of the quality of credit, the gross non-performing assets (GNPA) ratio of SCBs declined to 2.3 %, as on 31st March, 2025, down from approximately 2.8 % an year earlier. The GNPA amount fell 11.3 % year-on-year to ₹4.16 lakh crore as of Q4 FY 2024-25 and Net NPAs (NNPAs) dropped to an all-time low of 0.5 % by March 2025. However, next few months will be critical as the tariff continues to threaten the export markets. There could be a short to medium term impact on exporters, which may, in turn, affect the credit performance.

The ARC Industry

For ARC industry, the recovery momentum remained strong during FY 2024-25, supported by IBC, restructuring and settlements and underlying stress in certain pockets continues to offer opportunities for ARCs.

• While the levels of GNPA have declined across board, GNPA of ₹4.16 lakh crore is still a huge business potential for the Asset Reconstruction (ARC) industry and at attractive pricing as there is almost 80% provision against GNPA.
• New SR issuances dropped from ₹31,000 crore in FY 2023-24 to just ₹22,000 crore in FY 2024-25—a 29% decline, which can be attributed partially to liquidity and partially to a shrinking pool of fresh distressed assets.
• The cumulative recovery rate on SRs is anticipated to rise by up to 15 percentage points, reaching 75–80% by FY 2025-26. This is being driven by better performance in infrastructure sectors (like real estate, thermal power, roads), an increasing share of retail loans, fresh low-vintage acquisitions, and effective debt restructuring under the IBC framework.
• The resolution period and cost have increased under IBC regime due to extensive litigation and therefore, both Banks and NBFCs have recently accelerated the sale of distressed assets to ARCs, creating renewed acquisition opportunities.

The regulatory environment is supportive, with recent changes allowing ARCs to frame board-approved policies for settling small borrowers. The implementation of KYC norms and registration with CICs will enhance transparency and accountability, facilitating better credit risk assessment and risk return balance. Overall, the improved recovery rates in the asset reconstruction industry will be accompanied by greater focus on compliance. The broad-basing of Qualified Buyer base will go a long way creating additional liquidity for ARCs.