New Delhi, May 28 -- A decade ago, the banking system was facing ballooning bad loans. Public sector banks were loaded with bad debts, and defaulting promoters retained control of failing companies while creditors waited to recover investments. The Insolvency and Bankruptcy Code (IBC), enacted in 2016, set out to change that.

Ten years on, the transformation of India's banking sector is significant. Gross non-performing assets (GNPAs) of Scheduled Commercial Banks, which had peaked at over 11.5% in FY18 after the Reserve Bank of India's (RBI) Asset Quality Review, have fallen to about 2.0-2.3% in FY26. Net NPAs have dropped to near 0.5%, among the lowest in decades.

Public sector banks now have gross NPA ratios that declined from around...