New Delhi: Unfunded Old Pension Scheme (OPS) is likely to exert severe pressure on their finances especially with increasing longevity, which may constrain capital expenditure to be incurred by such states and create long-term inter-generational fiscal liabilities, Minister of State for Finance Pankaj Chaudhary informed Parliament on Monday.
The State Governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh, have informed the Government/PFRDA about reversion from National Pension System (NPS) to Old Pension Scheme (OPS).
Citing the recent State Finance Audit Reports of the CAG, Chaudhary said it has highlighted the fiscal implications of reversion to OPS by certain States. The reports indicate 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 that threaten to undermine State-level Fiscal Responsibility and Budget Management (FRBM) targets, he said in a written reply in the Lok Sabha.
As per RBI Report titled ‘State Finance: A Study of Budgets of 2022-23’, he said, the annual saving in fiscal resources that reversion to the OPS entails is short-lived. By postponing the current expenses to the future, he said, States risk the accumulation of unfunded pension liabilities in the coming years.
As per assessment in RBI Bulletin (September, 2023), 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, he said.
The pension burden on reversion to OPS is projected to outpace NPS contributions by 2030s, thereby posing risks to fiscal sustainability. Further, all States have enacted their Fiscal Responsibility and Budget Management (FRBM) Acts and compliance with the FRBM Acts is monitored by the respective State Legislature, he said.
Replying to another question, Chaudhary said Scheduled Commercial Banks (SCBs) and Public Sector Banks (PSBs) have recorded the highest ever aggregate net profit of Rs 4.01 lakh crore and Rs 1.78 lakh crore, respectively, during 2024-25.
Further, he said, the net profit of SCBs during the first half of 2025-26 was Rs 2.08 lakh crore. 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 that 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 2010-11 level, he said in a reply to another question.
The RBI initiated the Asset Quality Review (AQR) in 2015, post which the Government initiated 4R’s strategy of recognising 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 reply to another question, Chaudhary said, India’s external debt stood at $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 FY25 to 6 per cent in FY26 (up to September 2025), he said.