Low NPAs, strong credit growth may steer PSBs profit to record Rs 1.5 lakh cr in FY25
New Delhi: Public Sector Banks (PSBs) are on track to achieve a historic milestone, with their profits expected to surpass Rs 1.5 lakh crore in the financial year 2024-25. The robust performance comes on the back of low non-performing assets (NPAs), strong credit growth, and improved financial health.
In the first half of FY2024-25 alone, PSBs reported a 25 per cent increase in total net profit, reaching Rs 85,520 crore compared to Rs 68,500 crore in the same period last year. This growth trajectory is expected to continue in the second half, driven by sustained credit demand and improved operational efficiencies.
PSBs have made remarkable progress in asset quality management. The gross NPA ratio declined to 3.12 per cent in September 2024, a significant improvement from the peak of 14.58 per cent in March 2018. This achievement underscores the success of reforms implemented under the “4Rs” strategy—Recognition, Recapitalisation, Resolution, and Reform.
Another indicator of resilience is the Capital to Risk-Weighted Assets Ratio (CRAR), which improved to 15.43 per cent in September 2024 from 11.45 per cent in March 2015. This level far exceeds the Reserve Bank of India’s (RBI) minimum requirement of 11.5 per cent, demonstrating the sector’s enhanced stability and readiness to support economic growth.
The comprehensive reforms initiated by the RBI in 2015, including the Asset Quality Review (AQR), were instrumental in turning around the sector. The review mandated transparent recognition of NPAs and heightened provisioning, which initially impacted profitability but paved the way for long-term stability.
Public lenders recorded their highest-ever aggregate net profit of Rs 1.41 lakh crore in FY2023-24, supported by robust credit growth. As of November 2024, the year-on-year credit growth stood at 12.4 per cent, slightly outpacing deposit growth at 11.6 per cent. However, this disparity poses a challenge for banks, necessitating strategies to attract more deposits.
Experts believe the anticipated rate cut in the upcoming Monetary Policy Committee (MPC) meeting could further boost credit demand. However, ICRA Vice President Sachin Sachdeva cautioned that falling deposit rates might compress margins in the near term. Despite these concerns, he projected healthy profitability for the sector, with a return on assets (RoA) of 1.1-1.2 per cent in FY2026.
While operational metrics continue to improve, digital fraud has emerged as a pressing concern. In the first nine months of 2024, customers lost Rs 11,333 crore to cybercrime. Social engineering attacks and the proliferation of mule bank accounts have exacerbated these risks, exposing banks to financial and reputational damage.
Prime Minister Narendra Modi recently highlighted the need for greater awareness and vigilance against cyber fraud. The RBI, in collaboration with law enforcement agencies, is taking steps to enhance transaction monitoring and curb malicious activities. Initiatives such as MuleHunter.AITM, an AI/ML-based system piloted by the Reserve Bank Innovation Hub, aim to strengthen defences against digital fraud.
