Public Sector Banks expected to Cross Rs 1.5 Lakh Crore Profit in FY25

Public sector banks (PSBs) in India are on track to achieve a historic milestone, with profits projected to surpass ₹1.5 lakh crore in the financial year 2024-25. This growth is being driven by a combination of low non-performing assets (NPAs), robust credit growth, and improved operational efficiency.

Profit Surge in First Half of FY25

In the first half of FY25, PSBs reported a 25% rise in net profit, reaching ₹85,520 crore compared to ₹68,500 crore during the same period in FY23. This momentum is expected to continue in the second half of the fiscal year.

Record-High Profits in FY24

In FY24, PSBs recorded their highest-ever net profit of ₹1.41 lakh crore, fueled by better asset quality, double-digit credit growth, a healthy capital adequacy ratio, and rising returns on assets.

Significant Decline in NPAs

The Gross NPA ratio of PSBs has seen a remarkable improvement, dropping to 3.12% in September 2024 from a peak of 14.58% in March 2018. This decline highlights the success of measures like the Reserve Bank of India’s (RBI) Asset Quality Review (AQR) and the implementation of the 4Rs strategy—Recognition, Recapitalization, Resolution, and Reform.

Strong Capital Position

The Capital to Risk (Weighted) Assets Ratio (CRAR) of PSBs improved to 15.43% in September 2024, up from 11.45% in March 2015. This exceeds the RBI’s minimum requirement of 11.5%, reflecting the strengthened financial health of these banks.

Challenges Ahead

While PSBs are performing well, challenges persist. Deposit growth has lagged behind credit growth, with year-on-year growth rates of 11.6% and 12.4%, respectively, as of November 15, 2024. Additionally, digital fraud has emerged as a significant concern.

Rise in Digital Fraud

Prime Minister Narendra Modi recently expressed concern over the increasing instances of cybercrime, including “digital arrests.” In the first nine months of 2024, ₹11,333 crore was lost to digital fraud. Many cases stem from social engineering attacks and the misuse of mule bank accounts.

The RBI has called for stronger customer onboarding and transaction monitoring systems to mitigate risks. It is also piloting an AI/ML-based model, MuleHunter.AITM, through the Reserve Bank Innovation Hub (RBIH) to detect and curb fraudulent activities.

Future Outlook

Despite challenges, the outlook for PSBs remains positive. A potential rate cut in the upcoming Monetary Policy Committee (MPC) meeting is expected to further boost credit demand. However, experts like ICRA’s Sachin Sachdeva caution that deposit rate reductions may impact margins in the medium term.

Profitability is anticipated to remain strong, with a return on assets (RoA) projected at 1.2-1.3% for FY25 and 1.1-1.2% for FY26. As PSBs continue to strengthen their operations and resilience, they are well-positioned to support India’s economic growth.