Low NPAs and double-digit credit growth are expected to drive profits of public sector banks past the ₹1.5 lakh crore milestone in 2024-25. PSBs reported a 25 per cent jump in their total net profit to ₹85,520 crore in the first half of 2024-25 compared with ₹68,500 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 ₹1.41 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.

Notably, this CRAR far exceeds the RBI’s 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. The exercise was aimed at addressing hidden stress in banks by mandating the recognition of NPAs.