Public Sector Banks Record Net Profit of Rs 85,520 Crore In First Half FY2024-25

In the first half of FY 2024-25, Public Sector Banks (PSBs), including the State Bank of India (SBI), reported a net profit of ₹85,520 crore, marking an impressive 26% growth compared to ₹67,850 crore during the same period in the previous year. This significant achievement underscores the operational efficiency and financial resilience of PSBs, driven by improved asset quality, robust credit monitoring, and enhanced operational efficiency.

Strengthened Governance and Capital Base

The turnaround in the fortunes of PSBs can be largely attributed to strengthened governance practices and a bolstered capital base.

1. Key Governance Reforms

The government has implemented several key reforms, which include:

• Arm’s-length selection of top management to ensure transparency and efficiency.
• Introduction of non-executive chairpersons for nationalised banks, bringing enhanced accountability.
• Filling of key leadership positions through market-based recruitment, ensuring merit-driven appointments.

These initiatives have transformed governance structures in PSBs, enabling better decision-making and leadership.

2. Capital Strengthening

• Increased capital retention has significantly improved the Capital-to-Risk-Weighted-Assets Ratio (CRAR), keeping it well above the regulatory requirement.
• PSBs have successfully enhanced shareholder value, distributing ₹61,964 crore in dividends over the past three years.
• This reflects their financial strength and a strong commitment to rewarding stakeholders, including the government as their principal owner.

Improvement in Asset Quality

One of the most significant indicators of the progress made by PSBs is the sustained improvement in asset quality.

1. Decline in NPAs

• Gross Non-Performing Assets (GNPA) have seen a sharp decline to 3.12% in September 2024, down from their peak of 14.58% in March 2018.
• Net NPAs (NNPA) have also fallen to below 1%, showcasing significant progress in managing bad loans.

2. Interventions Leading to Success

This success has been driven by targeted interventions, such as:

• Rigorous recoveries of defaulted loans.
• Improved underwriting standards to ensure better loan approvals.
• Substantial write-offs of legacy bad loans to clean up balance sheets.

3. Role of the Asset Quality Review (AQR)

A critical turning point came in 2015 when the Reserve Bank of India (RBI) introduced the Asset Quality Review (AQR).

• The AQR mandated transparent recognition of NPAs and required reclassification of restructured loans.
• While this initially led to a sharp increase in reported NPAs, it laid the foundation for financial discipline and sustainable growth.

Supporting Credit Growth Across Key Sectors

With strengthened financial health, PSBs have been instrumental in driving credit expansion across crucial sectors.

1. Sectoral Credit Growth

PSBs have been pivotal in extending credit to:

• Retail customers, driving consumption-led growth.
• Micro, Small, and Medium Enterprises (MSMEs), which are the backbone of the economy.
• Infrastructure projects, supporting the development of key economic assets.

2. Focus on Green Finance and ESG Lending

• PSBs are increasingly playing a role in green finance by funding environmentally sustainable projects.
• Their emphasis on Environmental, Social, and Governance (ESG)-focused lending aligns them with India’s sustainability goals.

No New PSB Mergers but Stronger Synergies

Government’s Stand on PSB Mergers

• Recently, Pankaj Chaudhary, Minister of State for Finance, informed the Rajya Sabha that the government is not contemplating another round of PSB mergers.
• However, he highlighted that previous mergers have led to better synergies, economies of scale, and uniform improvement in financial performance.

PSBs: A Key Pillar of India’s Economic Growth

At their current pace, PSBs are expected to surpass the previous fiscal year’s net profit of ₹1.46 lakh crore.

1. Resilient Financial Institutions

The turnaround in PSBs highlights their growing role as resilient financial institutions capable of withstanding economic challenges.

2. Strategic Partners in India’s Growth

• PSBs are emerging as strategic partners in India’s pursuit of a $5 trillion economy.
• With their robust fundamentals and growing credit support, they are well-positioned to foster sustainable and inclusive development.

Here’s the summary of the news in tabular form:

Why in News	Key Points
PSBs Report Strong Financial Growth in FY 2024-25	– PSBs, including SBI, reported ₹85,520 crore net profit in H1 FY 2024-25, a 26% growth compared to last year.
	– This highlights PSBs’ operational efficiency, financial resilience, improved asset quality, credit monitoring, and operational efficiency.
Strengthened Governance and Capital Base	– Governance reforms: Arm’s-length selection of top management, non-executive chairpersons for nationalized banks, market-based recruitment for key leadership positions.
	– Capital strengthening: Increased capital retention improving CRAR; ₹61,964 crore distributed in dividends over the last 3 years.
Improvement in Asset Quality	– Gross NPAs dropped to 3.12% (Sept 2024) from 14.58% (March 2018).
	– Net NPAs fell below 1%, showing significant progress in managing bad loans.
	– Interventions: Rigorous recoveries, better underwriting standards, and write-offs of legacy bad loans.
	– Asset Quality Review (AQR) by RBI (2015) initiated transparency and discipline in recognizing NPAs and reclassifying restructured loans.
Supporting Credit Growth Across Sectors	– PSBs driving credit growth in retail, MSMEs, and infrastructure sectors.
	– Focus on green finance and ESG lending supporting India’s sustainability goals.
PSB Mergers	– Government not planning new PSB mergers; however, previous mergers led to synergies, economies of scale, and improved financial performance.
PSBs as Pillars of Economic Growth	– PSBs are set to exceed last year’s net profit of ₹1.46 lakh crore.
	– They are emerging as resilient financial institutions and strategic partners in India’s pursuit of a $5 trillion economy.
	– PSBs’ growing role in sustainable and inclusive development.