Revitalized Banking: Public Sector Banks' NPA Ratio at a Decade Low

Public sector banks' gross NPA ratio fell to 3.12% in September 2024. Government initiatives and RBI's AQR in 2015 drove transparency, improving banks' asset quality. PSBs recorded highest profits and expanded financial inclusion, with significant branch growth and loan schemes benefiting primarily women.

In a significant development for India's banking sector, public sector banks (PSBs) have witnessed a remarkable decline in their gross Non-Performing Asset (NPA) ratio, which plummeted to 3.12% in September 2024. This marks a significant drop from the staggering 14.58% peak observed in March 2018. The government attributes this positive trend to robust sectoral reforms and strategic initiatives undertaken over the past decade.

The government's efforts, complemented by the Reserve Bank of India's (RBI) Asset Quality Review (AQR), have played a vital role in strengthening the banking ecosystem. The AQR, initiated in 2015, was instrumental in stress-testing the financial health of banks, leading to the reclassification of stressed accounts as NPAs. This enhanced transparency allowed banks to recognize special treatment restructured loans, causing a peak in NPAs in 2018, but setting the stage for a more robust system now.

Notably, the financial performance of PSBs has surged with a recorded net profit of Rs1.41 lakh crore during the 2023-24 fiscal year, the highest ever. The momentum continued as PSBs registered a net profit of Rs0.86 lakh crore in the first half of 2024-25. Furthermore, public sector banks have comprehensively strengthened their capital base and asset quality, enabling them to access capital markets independently, thereby reducing reliance on government recapitalization.

Efforts to enhance financial inclusion have seen remarkable progress, with the number of bank branches rising from 117,990 in March 2014 to 160,501 by September 2024. Among these, an impressive 100,686 branches serve rural and semi-urban areas, ensuring an expanded reach. The opening of 54 crore Jan Dhan accounts and the sanctioning of over 52 crore collateral-free loans, primarily benefiting women, underscore the government's commitment to inclusive growth.

(With inputs from agencies.)