Public Sector Banks in India have achieved a remarkable milestone by recording their highest-ever aggregate net profit of Rs 1.41 lakh crore in the financial year 2023-24. This landmark achievement reflects the sector’s robust turnaround, underpinned by a significant improvement in asset quality. In addition to their stellar performance, Public Sector Banks have contributed significantly to shareholder returns, paying a total dividend of Rs 61,964 crore over the past three years. This remarkable financial growth underscores the sector’s operational efficiency, improved asset quality, and stronger capital base.
Beyond their financial achievements, these banks have played a key role in promoting financial inclusion. They have implemented crucial government schemes. These efforts have ensured that vital benefits reach underserved sections of society. The government of India has actively supported the sector with reforms, welfare measures, and strong policies. This has strengthened the banking system, fostering greater transparency, stability, and inclusivity. Public Sector Banks continue to expand their reach across the nation, deepening financial inclusion. Their strengthened capital base and improved asset quality have enabled them to access markets independently, reducing reliance on government recapitalisation.
The Gross NPA ratio of Public Sector Banks 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. A turning point came in 2015 when the Reserve Bank of India (RBI) initiated the Asset Quality Review (AQR). This exercise aimed to identify and address 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.
Focusing on governance, prudent lending, risk management, technology- and data-driven banking, the decline in Gross Non-Performing Assets (GNPA) and improved Capital to Risk (Weighted) Assets Ratio (CRAR) reflect the Public Sector Banks’s resilience and sound risk management practices. The EASE framework has been crucial in institutionalising reforms, promoting prudent lending, and leveraging technology for better banking services. The focus on financial inclusion has expanded access to banking, empowering millions with affordable credit and insurance.
Another indicator of the improved resilience of Public Sector Banks is their Capital to Risk (Weighted) Assets Ratio (CRAR). This substantial improvement not only highlights the renewed stability and robustness of India’s banking sector but also positions Public Sector Banks to better support economic growth. The government has implemented a series of measures to enhance the financial condition of Public Sector Banks through the Enhanced Access and Service Excellence (EASE) framework. This framework institutionalises an objective process of incremental reforms aligned with the evolving banking ecosystem.
