PSB’s GNPA Reduced to 3.12% in Sep 2024: Backed by Government’s Reform

Indian Government has been actively fostering the growth and stability of the banking ecosystem via proactive measures focused on business and employee welfare. These efforts aim to ensure transparency, stability, and continued growth. Over the past decade, numerous citizen- and staff-centric reforms have been implemented, contributing to the overall strengthening of the sector.

Reforms in the Banking Sector and Public Sector Banks (PSBs)

The Government has initiated several reformative actions to address the challenges in the banking sector, especially focusing on the public sector banks (PSBs). Notable initiatives include the Reserve Bank of India’s (RBI) Asset Quality Review (AQR), which began in 2015. This review helped identify and address stress points in the banking system by:

• Transparent Recognition of Non-Performing Assets (NPAs): Banks were required to reclassify stressed loans as NPAs, ensuring transparent recognition and withdrawal of special treatments such as restructured loans.
• Provisioning for Stressed Loans: Required provisions for previously unaccounted losses on stressed loans led to a peak in NPAs in 2018, significantly affecting the financial parameters of the banks and limiting their growth and lending capabilities.

Positive Outcomes of Government Reforms

The Government’s targeted interventions have significantly improved the financial health and resilience of the banking sector, particularly PSBs. Key improvements include:

1. Improvement in Asset Quality:
   • The gross NPA ratio of PSBs reduced to 3.12% in September 2024, down from 4.97% in March 2015, and a peak of 14.58% in March 2018.
2. Improvement in Capital Adequacy:
   • The Capital to Risk Weighted Assets Ratio (CRAR) of PSBs increased by 393 basis points, reaching 15.43% in September 2024 from 11.45% in March 2015.
3. Record Financial Performance:
   • PSBs reported the highest-ever aggregate net profit of ₹1.41 lakh crore in FY2023-24, up from ₹1.05 lakh crore in FY2022-23. Additionally, ₹0.86 lakh crore was recorded in the first half of FY2024-25.
4. Dividend Payments:
   • Over the past three years, PSBs paid a total dividend of ₹61,964 crore, highlighting their improved profitability.
5. Access to Capital Markets:
   • Strengthened capital bases and improved asset quality have enabled PSBs to access capital markets for funding, reducing their dependence on government recapitalisation.

Government Support For the MSME Sector

The Government has also focused on supporting the MSME sector by ensuring a steady flow of credit at affordable rates. Key highlights include:

• Growth in MSME Advances: MSME advances have grown at a compound annual growth rate (CAGR) of 15% over the last three years, reaching ₹28.04 lakh crore by March 2024.
• Strong Annual Growth: MSME advances registered an annual growth of 17.2% as of March 2024.

Expansion of SCB’s Gross Advances

The gross advances of Scheduled Commercial Banks have witnessed substantial growth. From ₹8.5 lakh crore in 2004-2014, advances surged to ₹175 lakh crore by March 2024, reflecting the expansion of credit and the overall growth of the banking sector.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.