PSBs’ Net Profit To Surpass Rs 1.5L Cr

New Delhi: Low NPAs and double-digit credit growth are expected to drive profits of public sector banks past the Rs1.5 lakh crore milestone in 2024-25. PSBs reported a 25 per cent jump in their total net profit to Rs85,520 crore in the first half of 2024-25 compared to Rs68,500 crore in H1’FY23 and the trajectory is likely to continue in the second half as well. Public lenders recorded their highest-ever aggregate net profit of Rs1.41 lakh crore in 2023-24 on the back of significant improvement in asset quality, credit growth, healthy capital adequacy ratio and rising return on assets.

The Gross NPA ratio of PSBs has witnessed a remarkable improvement, declining to 3.12 per cent in September 2024 from a peak of 14.58 per cent in March 2018. This significant reduction reflects the success of targeted interventions aimed at addressing stress within the banking system. Another indicator of the improved resilience of PSBs is their Capital to Risk (Weighted) Assets Ratio (CRAR), which rose by 3.98 per cent to 15.43 per cent in September 2024, up from 11.45 per cent in March 2015.

This remarkable improvement not only highlights the renewed stability and robustness of the banking sector, but also positions PSBs to better support economic growth. Notably, this CRAR far exceeds the Reserve Bank of India’s (RBI) minimum requirement of 11.5 per cent, underscoring the strengthened financial health of these institutions. As a result, India is closer to a twin balance sheet advantage from the deficit which was the case in 2014-15. A turning point came in 2015 when the Reserve Bank of India (RBI) initiated the Asset Quality Review (AQR).

The exercise was aimed at identifying and addressing hidden stress in banks by mandating the transparent recognition of NPAs. It also reclassified previously restructured loans as NPAs, resulting in a sharp increase in reported NPAs. The heightened provisioning requirements during this period impacted the financial parameters of banks, restricting their ability to lend and support productive sectors of the economy.

However, with the implementation 4Rs--Recognition, Recapitalization, Resolution, and Reform--PSBs regained their strength. In the last three years, PSBs have contributed significantly to shareholder returns, paying a total dividend of Rs61,964 crore.