Non-performing assets in public sector banks before and after merger: an empirical analysis of India

Non-Performing Assets (NPAs) have been one of the major challenges affecting the financial performance and stability of Public Sector Banks (PSBs) in India. The Government of India undertook a major consolidation programme during 2019–20 with the objective of creating larger, stronger and more efficient banks, improving risk management, reducing operational costs and strengthening the capacity of banks to deal with stressed assets. The major amalgamations became effective from April 2020. This study examines the trend and behaviour of NPAs in Indian Public Sector Banks before and after the bank merger. The study is based exclusively on secondary data obtained from the Reserve Bank of India (RBI) and the Department of Financial Services (DFS), Ministry of Finance. The study covers the period from 2018–19 to 2024–25, with 2018–19 and 2019–20 treated as the pre-merger period and 2020–21 to 2024–25 as the post-merger period. The analysis focuses on Gross NPA, Gross NPA ratio, Net NPA and Net NPA ratio. The findings indicate a substantial improvement in the asset quality of PSBs after the merger period. Gross NPAs declined from ₹6.78 lakh crore in 2019–20 to ₹2.84 lakh crore in 2024–25, while the Gross NPA ratio declined from 10.3 per cent to 2.6 per cent. The average Gross NPA ratio declined from 10.95 per cent during the pre-merger period to 5.50 per cent during the post-merger period. However, the improvement cannot be attributed to merger alone, as it coincided with several measures including recovery initiatives, write-offs, insolvency proceedings, recapitalisation, improved provisioning, credit-risk management and economic recovery. The study concludes that consolidation appears to have contributed to strengthening the financial structure and asset-quality management of PSBs, but the long-term success of mergers depends on effective integration, prudent lending, recovery mechanisms and continuous risk management.