PBS in India Record Strong Growth in H1FY25: Net Profit Surges 25.6% Amid Reforms

The Union Finance Ministry reported on Tuesday that public sector banks (PSBs) in India achieved strong financial growth in the first half of the fiscal year 2024-25 (H1FY25), with their combined business expanding by an impressive 11% to reach Rs 236 trillion. This notable performance reflects both increased profitability and the resilience of India’s banking sector amid ongoing economic reforms.

Significant Increases in Operating and Net Profit

PSBs experienced considerable growth in their operating and net profits during this period. Operating profit increased by 14.4% year-on-year (Y-o-Y) to Rs 1.5 trillion, while net profit surged by an impressive 25.6%, reaching Rs 85,520 crore in the first half of FY25. These gains highlight the effectiveness of recent banking reforms and the sector’s strategic focus on profitability.

Growth in Credit and Deposit Portfolios

According to the Finance Ministry, the global credit and deposit portfolios of PSBs also expanded substantially in H1FY25. The total credit portfolio saw a Y-o-Y growth of 12.9%, reaching Rs 102.29 trillion, while the deposit portfolio grew by 9.5% to Rs 133.75 trillion. The ministry attributed these gains to reforms and policy measures aimed at strengthening the banking sector.

“Under the leadership of the Prime Minister, Narendra Modi, and the guidance of the Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, major banking reforms like the implementation of Enhanced Access and Service Excellence (EASE), enactment of the Insolvency and Bankruptcy Code (IBC), establishing a robust governance framework, setting up the National Asset Reconstruction Company Ltd. (NARCL), and the amalgamation of PSBs, among other initiatives, were undertaken in the last few years,” the ministry stated.

Improvement in Asset Quality and NPAs

The ministry’s report indicated improvements in PSBs’ asset quality, with reductions in non-performing assets (NPAs). As of September 2024, the gross NPA ratio stood at 3.12%, while the net NPA was down to 0.63%, reflecting a year-on-year decline of 108 basis points (bps) and 34 bps, respectively. These declines demonstrate the sector’s focus on credit discipline and effective risk management.

In terms of capital strength, the capital-to-risk weighted assets ratio (CRAR) for PSBs was reported at 15.43% as of September 2024, well above the regulatory requirement of 11.5%. This robust capital position is seen as a positive indicator of financial stability.

Impact of Reforms on Financial Health and Governance

The Finance Ministry emphasized that the banking sector’s recent gains are a result of comprehensive reforms and consistent monitoring aimed at strengthening governance, risk management, and operational efficiency. “The reforms and regular monitoring have addressed many concerns and challenges, resulting in enhanced systems and processes for credit discipline, recognition and resolution of stressed assets, responsible lending, improved governance, financial inclusion initiatives, technology adoption, and more. These measures have led to a sustained financial health and robustness of the banking sector as a whole, as reflected in the current performance of PSBs,” the ministry’s statement noted.

Technological Advancements in Public Sector Banks

India’s PSBs have been making strides in adopting new-age technologies such as artificial intelligence, cloud computing, and blockchain, in addition to enhancing their digital infrastructure. The Finance Ministry highlighted that these banks are actively upgrading systems and controls to manage cybersecurity risks and improve customer service. The aim is to align with global standards and offer secure, seamless banking experiences.

Currently, there are 12 public sector banks in India, including prominent institutions like the State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Indian Overseas Bank (IOB), and UCO Bank. These banks are playing a critical role in modernizing India’s banking landscape while focusing on improved customer experience and technological resilience.

Re-KYC Process Initiated for PM Jan Dhan Yojana Accounts

As part of ongoing financial inclusion efforts, a re-Know Your Customer (re-KYC) process is underway for account holders under the Pradhan Mantri Jan Dhan Yojana (PMJDY). On November 11, M Nagaraju, Secretary of the Department of Financial Services, chaired a meeting to discuss the re-KYC process with stakeholders, underscoring the importance of updating customer information.

During the meeting, Nagaraju recommended using various methods to complete re-KYC, including fingerprints, face recognition, and customer declarations in cases where there were no changes in KYC details. He suggested utilizing multiple channels, such as ATMs, mobile banking, and internet banking, to ensure a streamlined and accessible re-KYC process. Nagaraju also encouraged PSBs to adopt best practices from other banks to enhance the efficiency of the re-KYC process.

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Key Performance Highlights of PSBs in H1FY25

• Global Credit Portfolio Growth: 12.9% Y-o-Y increase, reaching Rs 102.29 trillion.
• Deposit Portfolio Growth: 9.5% Y-o-Y rise, totaling Rs 133.75 trillion.
• Net Profit Growth: 25.6% Y-o-Y increase, amounting to Rs 85,520 crore.
• Reduction in Gross NPAs: Down by 108 basis points to 3.12%.
• Capital Adequacy: CRAR at 15.43%, surpassing the regulatory requirement of 11.5%.

Outlook for PSBs Amid Reforms and Economic Recovery

The current financial performance of India’s public sector banks reflects the resilience of the sector amidst challenging economic conditions. The continued emphasis on reforms, technology adoption, and financial inclusion is expected to further strengthen the sector’s stability and growth prospects in the coming years. As the re-KYC process for PMJDY accounts rolls out, the ministry anticipates improved financial services accessibility for millions of account holders across India.