Public sector banks (PSBs) in India are set to achieve their highest-ever profits in the financial year 2024-25 (FY25). According to sources, the combined net profit of PSBs is expected to reach ₹1.75-1.80 lakh crore, reflecting a 25% increase compared to the previous year.
Strong Performance in the First Half of FY25
During the first half of FY25, PSBs have already earned approximately ₹86,000 crore in profits. This growth continues the strong financial performance seen in the previous financial year.
In FY2023-24, public sector banks recorded an all-time high net profit of ₹1.41 lakh crore, a 34% increase from ₹1.05 lakh crore in FY2022-23.
Challenges Ahead in FY26
Despite this strong performance, analysts warn that PSBs may face challenges in FY26 due to factors such as:
- Margin Pressure: Interest rate fluctuations may impact net interest margins.
- CASA Deposits Decline: A shift in deposit patterns could affect low-cost funds.
- Credit Growth Slowdown: Economic conditions may impact lending activities.
Declining Non-Performing Assets (NPA)
The financial health of PSBs has significantly improved over the years. Gross Non-Performing Assets (GNPA) have declined to 3.12% as of September 2024, compared to a peak of 14.58% in March 2018. This reduction reflects better asset quality and improved recovery mechanisms.
Government’s 4R Strategy Strengthens PSBs
The improvement in financial stability can be attributed to the Indian government’s 4R strategy:
- Recognition – Identifying and addressing stressed assets.
- Resolution – Implementing measures to resolve bad loans.
- Recapitalisation – Injecting funds to strengthen PSBs’ capital base.
- Reforms – Introducing policy changes to improve banking governance.
Stronger Capital Position
The capital adequacy of public sector banks has also improved significantly. The Capital to Risk-Weighted Assets Ratio (CRAR) has increased by 393 basis points, reaching 15.43% in September 2024, compared to March 2015.
