New Delhi, February 9 The unfunded Old Pension Scheme (OPS) is likely to put significant pressure on the finances of states, especially with increasing life expectancy, which may limit capital expenditure for these states and create long-term intergenerational fiscal liabilities, Finance Minister Pankaj Chaudhary informed Parliament on Monday.
The State Governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the Government/PFRDA about their reversion from the National Pension System (NPS) to the Old Pension Scheme (OPS).
Citing recent State Finance Audit Reports of the Comptroller and Auditor General (CAG), Chaudhary said these reports highlighted the fiscal implications of the reversion to OPS by certain states.
He stated that OPS, being an unfunded defined benefit pension scheme, is likely to lead to an increase in committed fiscal liabilities over the medium to long term, which could undermine State-level Fiscal Responsibility and Budget Management (FRBM) targets.
According to the Reserve Bank of India (RBI) report titled 'State Finance: A Study of Budgets of 2022-23', the annual savings in fiscal resources that reversion to OPS entails is short-lived.
He added that postponing current expenses to the future risks the accumulation of unfunded pension liabilities in the coming years.
While reversion to OPS may result in a reduction in pension outgo in the short run, it would lead to a significant build-up of unfunded pension liabilities in the long run, Chaudhary said.
He further stated that all states have enacted their Fiscal Responsibility and Budget Management (FRBM) Acts, and compliance with these Acts is monitored by the respective State Legislatures.
In response to another question, Chaudhary said that Scheduled Commercial Banks (SCBs) and Public Sector Banks (PSBs) recorded a net profit of Rs 4.01 lakh crore and Rs 1.78 lakh crore respectively during 2024-25.
He added that the net profit of SCBs during the first half of 2025-26 was Rs 2.08 lakh crore.
The Gross Non-Performing Asset (GNPA) ratio of SCBs declined to 2.05 per cent in September 2025 from 4.28 per cent in March 2015, and from a peak of 11.18 per cent in March 2018.
The Gross NPA ratio, which is gross NPAs as a percentage of gross loans and advances of SCBs, for domestic operations, has been continuously declining during the last eight financial years, and were at a historic low of 2.15 per cent as at the end of September, 2025 (provisional data), which is lower than the level in 2010-11, he said in a reply to another question.
The Reserve Bank of India (RBI) initiated the Asset Quality Review (AQR) in 2015, post which the Government initiated the 4R’s strategy of recognizing NPAs transparently, resolving and recovering value from stressed accounts through clean and effective laws and processes, recapitalising PSBs, and reforms in banks and financial ecosystem to address the problem of rising NPAs and growing loan default, he said.
Enabled by these initiatives, a large drop in gross NPAs was achieved by PSBs, he added.
In response to another question, Chaudhary said, India’s external debt stood at USD 746 billion and the external debt-to-GDP ratio was 19.2 per cent as of end-September 2025.
India’s debt service ratio has declined from 6.6 per cent in 2024-25 to 6 per cent in 2025-26 (up to September 2025), he said.
The prudent external debt management policy of the Government of India has helped in maintaining a comfortable external debt position, he said.
The policy continues to focus on monitoring long and short-term debt, raising sovereign loans on concessional terms with longer maturities, maintaining a diversified currency composition of external debt, regulating external commercial borrowings and rationalising interest rates on Non-Resident Indian deposits, he said.
In response to another question, Chaudhary said, over the last three years, total agricultural advances of PSBs and Private Sector Banks (including Small Finance Banks) have recorded a Compounded Annual Growth Rate (CAGR) of 26 per cent, and 11 per cent respectively.