India's banking sector has performed brilliantly in the last few years. According to the annual report of the Finance Ministry, the gross NPA (non-performing asset) of banks has come down from 11.18% (Rs 10.36 lakh crore) in March 2018 to 2.67% (Rs 4.75 lakh crore) in June 2024. The NPA of public sector banks also came down from 14.58% (Rs 8.96 lakh crore) to 3.32% (Rs 3.29 lakh crore) in the same period.

NPAs are those loans from which the bank does not get interest or principal amount. If the payment is not made for 90 days, they are declared as NPA.

improvement in asset quality

Due to government policies and reforms, the asset quality of banks has improved. The provisional coverage ratio (PCR) of scheduled commercial banks has increased from 49.31% in March 2015 to 92.52% in June 2024. The PCR of public sector banks also increased from 46.04% to 93.36% during the same period.

PCR is the ratio of the amount of money that a bank keeps aside to cover losses arising from bad loans.

Record rise in profits

Scheduled Commercial Banks earned a net profit of Rs 3.50 lakh crore in the financial year 2023-24. This is 33% more than Rs 2.63 lakh crore in the previous financial year 2022-23.

The performance of public sector banks was also excellent. In the financial year 2023-24, they recorded a profit of Rs 1.41 lakh crore, which is much higher than Rs 1.05 lakh crore in 2022-23.

Shareholders received dividend

Public sector banks paid a dividend of Rs 27,830 crore in 2023-24, out of which the government got Rs 18,013 crore.

Impact of reforms

This improvement in the banking sector is the result of the strategic policies of the government. Recapitalization, resolution of stressed accounts, and reforms in banks played an important role. This has strengthened the financial position of the banks.

The way forward

With a reduction in NPAs and an increase in profits, the banking sector is in a better position than before. Experts believe that this sector will become the backbone of the Indian economy in the coming years.