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India's banking sector in robust health as NPAs fall and profits shoot up: Finance Ministry
As a result of the government's overarching policy to undertake the resolution of stressed accounts, recapitalisation and reforms in banks, the financial health and robustness of India’s banking sector has improved significantly with a sharp decline in NPA (non-performing assets) ratios and record profits during 2024, the Finance Ministry has said in its year-end review.
New Delhi : As a result of the government's overarching policy to undertake the resolution of stressed accounts, recapitalisation and reforms in banks, the financial health and robustness of India’s banking sector has improved significantly with a sharp decline in NPA (non-performing assets) ratios and record profits during 2024, the Finance Ministry has said in its year-end review.
It highlighted that the Gross NPA ratio of scheduled commercial banks declined to 2.67 per cent (Rs 4.75 lakh crore) in June 2024 from 4.28 per cent from a peak of 11.18 per cent (Rs 10.36 lakh crore) in March 2018.
The Gross NPA ratio of public sector banks has come down to 3.32 per cent (Rs 3.29 lakh crore) in June 2024 from a peak of 14.58 per cent (Rs 8.96 lakh crore) in March 2018.
The NPA ratio reflects the proportion of bad loans to total loans given out by banks.
The statement also highlights that the Net NPAs of scheduled commercial banks (SCBs), which include both public and private sector banks, declined to Rs 1.05 lakh crore (0.6 per cent) in June 2024 from a peak of Rs 5.2 lakh crore (5.94 per cent) in March 2018.
The Net NPAs of PSBs have fallen to Rs 0.68 lakh crore (0.71 per cent) in June 2024 from Rs 2.15 lakh crore (3.92 per cent) in March 2015 and from a peak of Rs 4.54 lakh crore (7.97 per cent) in March 2018.
According to the finance ministry, the resilience of the banking sector has also increased with the provision coverage ratio (PCR) of SCBs increasing from 49.31 per cent in March 2015 to a healthy 92.52 per cent in June-24.
Similarly, the provision coverage ratio of PSBs has gone up from 46.04 per cent in March 2015 to a healthy 93.36 per cent in June 2024.
There has also been a significant improvement in the capital adequacy of banks with the capital to risk-weighted assets ratio (CRAR) of SCBs improving by 185 bps to reach 14.79 per cent in Jun 2024 from 12.94 per cent in March 2015.
Similarly, the CRAR of PSBs has improved by 173 bps to reach 13.18 per cent in June 2024 from 11.45 per cent in March 2015.
During FY 2023-24, SCBs have recorded the highest ever aggregate net profit of Rs 3.50 lakh crore against net profit of Rs 2.63 lakh crore in FY 2022-23.
In FY 2023-24, PSBs recorded their highest ever aggregate net profit of Rs 1.41 lakh crore against net profit of Rs 1.05 lakh crore in FY 2022-23, and recorded Rs 0.40 lakh crore in the first quarter of FY 2024-25.
The PSBs declared a dividend of Rs 27,830 crore to shareholders of which the Government of India share was Rs 18,013 crore in FY2023-24 against a total dividend of Rs 20,964 crore to shareholders (GoI share Rs 13,804) in FY2022-23.
"Enabled by implementation of comprehensive reforms, the financial health of PSBs has improved significantly, enhancing their ability to raise capital (in the form of both equity and bonds) from the market. PSBs have mobilised capital of Rs 4.34 lakh crore from the market from FY2014-15 to FY2023-24," the report further highlighted.
Banks, earlier placed under Prompt Corrective Action (PCA) framework by the RBI, have made significant improvements resulting in removal of each one of them from the PCA restrictions, the statement highlighted.
By addressing issues of NPAs and recapitalisation, the reforms introduced by the government have contributed to improving the overall credit flow in the economy. PSBs emerged healthier and are poised to facilitate growth in productive sectors of the economy, the statement added.
