Indian Banks Hit Multi-Decadal Lows in Bad Loans at 2.1%, Net Profits Rise 14.8%
The Indian banking sector has reached its healthiest position in decades, with bad loans at multi-decadal lows and robust profitability. The gross non-performing asset ratio of scheduled commercial banks decreased to 2.1% by end-September. Net profits increased by 14.8% to ₹4.01 lakh crore at end-March. State-run banks saw a slight decline in market share, while foreign banks and small finance banks gained. The credit-deposit ratio improved to 80.5% by end-November. Despite overall improvements, the total amount involved in frauds increased to ₹21,515 crore, largely due to compliance-related re-examinations.
*this image is generated using AI for illustrative purposes only.
The Indian banking sector has achieved its healthiest position in decades, with bad loans declining to multi-decadal lows and profitability remaining robust, according to the latest regulatory report "The Trends and Progress of Banking in India." The comprehensive assessment reveals significant improvements in asset quality alongside notable shifts in market share dynamics across different banking categories.
Asset Quality Reaches Historic Highs
The banking sector's asset quality improvement continued its remarkable trajectory. The gross non-performing asset (GNPA) ratio of scheduled commercial banks declined substantially to 2.2% at end-March from 2.7% a year earlier, further improving to a multi-decadal low of 2.1% by end-September.
| Asset Quality Metric | End-March | End-September | Previous Year |
|---|---|---|---|
| GNPA Ratio | 2.2% | 2.1% | 2.7% |
| Slippage Ratio | 1.4% | 1.3% | - |
| CRAR | - | 17.2% | - |
The slippage ratio demonstrated consistent improvement, declining for the fifth consecutive year to 1.4% at end-March and falling further to 1.3% by end-September. All bank groups remained well capitalised, with the capital to risk-weighted assets ratio (CRAR) maintaining a healthy 17.2% as of end-September.
Profitability Growth Moderates but Remains Strong
Net profits of scheduled commercial banks increased 14.8% to ₹4.01 lakh crore at end-March, though the growth pace moderated compared to the previous year's exceptional 32.8% increase. This moderation partly reflected slower growth in net interest income across the banking sector.
The credit-deposit ratio demonstrated steady improvement, rising to 79.2% at end-March from 78.8% a year earlier and further increasing to 80.5% at end-November, indicating enhanced lending activity relative to deposit mobilisation.
Market Share Dynamics Show Sectoral Shifts
The banking sector witnessed notable changes in market share distribution. State-run banks experienced a marginal decline in their consolidated balance sheet share, dropping to 54.9% at end-March from 55.2% a year earlier. Private sector banks also saw their share edge down to 37.1% from 37.5% over the same period.
| Bank Category | March Share | Previous Year Share | Change |
|---|---|---|---|
| State-run Banks | 54.9% | 55.2% | -0.3% |
| Private Banks | 37.1% | 37.5% | -0.4% |
| Foreign Banks | Increased | - | Positive |
| Small Finance Banks | Increased | - | Positive |
Conversely, foreign banks, small finance banks and payment banks gained market share during the period. Despite the balance sheet share decline, state-run banks demonstrated strong lending performance, with their share of total advances rising to 56.2% at end-March from 55.5% a year earlier, even as their deposit share declined to 58.8% from 59.3%.
Fraud Values Rise Due to Compliance Requirements
While operational metrics improved significantly, the banking sector faced challenges with fraud-related losses. Between April and September, the total amount involved in frauds stood at ₹21,515 crore across 5,092 cases, compared with ₹16,569 crore involving 18,386 cases in the same period of the previous year.
The increase in fraud values was largely attributed to re-examination and fresh reporting of 122 fraud cases amounting to ₹18,336 crore to ensure compliance with a Supreme Court judgement. Notably, while the total fraud amount increased, the actual number of reported fraud cases declined.
Sector Leadership and Scale Achievements
The banking sector's growth momentum was exemplified by major institutions achieving significant milestones. In Q2, SBI's total business crossed ₹100 lakh crore, with deposits reaching ₹55.9 lakh crore and advances at ₹44.2 lakh crore, demonstrating the scale and growth trajectory of India's largest banking institution.
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