Banking Sector Shows Strong Recovery with Decline in NPAs and Record Profits: Finance Ministry
India’s banking sector has shown significant improvement in financial health, marked by a sharp decline in non-performing assets (NPAs) and record profits in 2024, the Finance Ministry stated in its year-end review. This progress is attributed to the government’s focus on resolving stressed accounts, recapitalization, and banking reforms.
Key Highlights of the Banking Sector’s Recovery
- Decline in Gross NPAs
- Scheduled Commercial Banks (SCBs): The Gross NPA ratio fell to 2.67% (₹4.75 lakh crore) in June 2024, compared to 11.18% (₹10.36 lakh crore) in March 2018.
- Public Sector Banks (PSBs): The Gross NPA ratio reduced to 3.32% (₹3.29 lakh crore) in June 2024 from 14.58% (₹8.96 lakh crore) in March 2018.
- Reduction in Net NPAs
- SCBs: Net NPAs dropped to ₹1.05 lakh crore (0.6%) in June 2024 from a peak of ₹5.2 lakh crore (5.94%) in March 2018.
- PSBs: Net NPAs reduced to ₹0.68 lakh crore (0.71%) in June 2024 from ₹4.54 lakh crore (7.97%) in March 2018 and ₹2.15 lakh crore (3.92%) in March 2015.
- Improved Provision Coverage Ratio (PCR)
- SCBs: PCR increased from 49.31% in March 2015 to a robust 92.52% in June 2024.
- PSBs: PCR rose from 46.04% in March 2015 to 93.36% in June 2024.
- Strengthened Capital Adequacy
- SCBs: The capital to risk-weighted assets ratio (CRAR) improved to 14.79% in June 2024 from 12.94% in March 2015.
- PSBs: CRAR increased to 13.18% in June 2024 from 11.45% in March 2015.
- Record Profits in FY 2023-24
- SCBs: Registered a record net profit of ₹3.50 lakh crore, up from ₹2.63 lakh crore in FY 2022-23.
- PSBs: Achieved their highest-ever net profit of ₹1.41 lakh crore in FY 2023-24, compared to ₹1.05 lakh crore in FY 2022-23. They further earned ₹0.40 lakh crore in Q1 FY 2024-25.
- Dividends and Capital Mobilization
- PSBs declared ₹27,830 crore in dividends for FY 2023-24, with the government receiving ₹18,013 crore.
- PSBs raised ₹4.34 lakh crore from the market between FY 2014-15 and FY 2023-24 through equity and bonds.
- Removal from Prompt Corrective Action (PCA)
- Banks previously under the RBI’s PCA framework have shown substantial improvements and are no longer under restrictions.
Driving Factors Behind the Recovery
The ministry attributed the recovery to:
- Comprehensive banking reforms.
- Recapitalization efforts.
- Enhanced credit flow to productive sectors of the economy.
As a result, public sector banks are now healthier and better positioned to support economic growth and development. This progress underscores the government’s commitment to strengthening the banking system and ensuring its resilience in the face of challenges.
