India's public sector banks, which were struggling from legacy stress and mounting bad loans only a half decade ago, have spearheaded a remarkable turnaround in 2024-25, driving the banking sector’s profit to a historical high of ₹3.71 lakh crore. Fuelled by increased lending, higher income generation and reduced NPAs, the government-owned banks saw a massive profit surge last year.
Public sector banks' cumulative profit rose to a record ₹1.78 lakh crore in 2024-25, registering 26% growth over the previous year. Aggregate profits of 12 public sector banks were estimated at ₹.1.41 lakh crore in FY24. In absolute terms, the year-on-year profit rose by about Rs.37,100 crore in FY25 over the previous year.
The increase in profit was followed by a sharp decline in non-performing assets (NPAs). In two years, between 2022-23 and 2024-25, net NPAs of the PSBs fell from 1.24% to 0.52%, net profit increased from ₹1.04 lakh crore to Rs.1.78 lakh crore, and dividend payouts grew from ₹ 20,964 crore to ₹ 34,990 crore during this period. Finance minister has hailed the performance of the banking sector and has also appraised that the PSBs are adequately capitalised with their capital to risk (weighted) assets ratio estimated at a healthy 16.15% as of March 2025.
They are good news for an economy that dreams to become a five hundred economy in two years from now. Banks are vital to a modern economy, acting as the backbone for financial activity and economic growth. They facilitate savings, lending and payment systems, while also playing a crucial role in economic stability and in the country’s growth process. Essentially, banks connect savers and borrowers, manage money flow and support economic activities by maintaining required fund flows.
The banking industry in India has historically been one of the most stable systems globally, despite global upheavals. The government has consistently strived to promote financial inclusion through various initiatives targeted to bring the country’s under-banked population under the banking system.
The banking sector is playing a vital role in mobilising capital, expanding credit access, and driving financial inclusion. While it continues to navigate challenges such as regulatory shifts, rising operational costs and growing competition from diverse fintech players, the sector is simultaneously embracing opportunities brought by digital innovation, structural reforms and evolving customer needs. From UPI’s global reach to a surge in fintech investments and grassroots financial schemes like Jan Dhan Yojana, India’s banking landscape is undergoing a dynamic transformation laying the groundwork for a more inclusive, tech-driven, and resilient financial ecosystem.
The Indian banking system consists of 12 public sector banks, 21 private sector banks, 44 foreign banks, 12 Small finance banks. The Indian fintech industry, currently estimated at $ 111 billion, is projected to rise to $ 421 billion by 2029. India has the third largest fintech ecosystem globally. India is one of the fastest-growing fintech markets in the world. There are currently more than 2,000 DPIIT-recognized financial technology (fintech) businesses in India, and this number is rapidly growing.
India aims to become a five trillion-dollar economy by 2027 – and to achieve the target the country needs to expand its infrastructure capabilities exponentially. To support its infrastructure growth, a healthy financial sector – in particular a healthy banking sector is essential. The growth of an economy largely depends on its banking sector (Liang & Reichert, 2006). An efficient banking system has to achieve three goals: profit, high-quality service to customers, and sufficient funds to lend to borrowers. Furthermore, a profitable banking sector also has more capacity to absorb shocks and provide relative stability to the economy. For this purpose, it is important to analyse the impact of bad loans on the performance of the banking sector. In fact, the spiralling bad loans were the biggest problem of the Indian banking sector till recently. The amount of bad loans has come down substantially of late and with it has increased the lending power of banks.
Public sector banks led profit growth in FY25
Improved asset quality, increased lending and continuous fiscal reforms have done wonders for India’s banking sector. Driven by factors like a growing economy, increasing disposable incomes, adoption of digital technologies and uptrend in financial algorithms, the combined net profits of 12 public sector banks (PSB) have zoomed to ₹1.78 lakh crore in 2024-25 – up 26% from ₹1.41 lakh crore in 2023-24.
State Bank of India (SBI), the country’s largest and the oldest public sector lender, has emerged as the most profitable bank in India for FY25, outpacing leading private sector peers such as HDFC Bank and ICICI Bank. SBI alone accounted for over 40% of the total net profit generated by all listed public sector banks in 2024-25.
SBI earned a standalone net profit of `70,901 crore last year, marking a 16% increase over ₹ 61,077 crore in 2023-24. The bank’s operating profit crossed the ₹1 lakh crore milestone, rising 17.89% year-on-year to ₹1,10,579 crore.
If SBI led the list, what is significant is that all 12 public sector banks (PSBs) earned a profit in fiscal year 2024-25. Several of them have earned substantial profit growth including Punjab National Bank, which doubled its profit to `16,630 crore, Punjab and Sind Bank increased its profit by 71% to ₹1016 crore. Central Bank of India earned 48.4% higher profit at ₹3,785 crore while UCO Bank’s profit rose by 47.8% to ₹2,445 crore. Bank of India posted a 45.9% growth in net profit to ₹9,219 crore in 2024-25.
But while the public sector banks rode on robust profits in 2024-25, the private sector banks showed a mixed performance with some experiencing significant increases while some others faced challenges. A few of them faced declines in profits due to various factors, including exceptional losses. The combined net profits of the private sector banks increased by 7% to ₹1.87 lakh crore last year. The private sector banks' performance was influenced by factors like the need to prioritize asset quality and stricter credit filters, which led to a more moderate growth in their lending activities.
However, the private sector leaders ICICI Bank and HDFC Bank maintained strong profitability while managing consistent deposit and credit expansion. ICICI Bank’s net profit rose by 15.5%, from ₹ 40,888 crore in FY24 to ₹ 47,226 crore in FY25. Meanwhile, HDFC Bank, India’s largest private sector bank, which has been consolidating after its merger with HDFC Ltd, saw a 10.7% increase in net profit, rising to ₹67,347 crore in FY25 from ₹60,812 crore in FY24.
Public sector banks have outperformed private banks in loan growth for the first time since 2011. At the end of FY25, PSBs achieved a 13.1% YoY loan growth, outpacing private banks by four percentage points, which recorded a 9% growth. This strong performance was evident across multiple segments, including mortgages, corporate loans, and various non-mortgage retail segments such as auto loans. Private sector banks have historically commanded premium valuations due to their steady market share gains, growing 6 -7% faster than the system growth rates.
Digital payments drive digital economy
The Indian banking system has not only grown in size over the years but has also undergone a massive technological upgradation. The demonetization policy of the government had a significant impact on the country’s economy that accelerated the growth of digital transactions in India.
Digital banking gives one the luxury of freely accessing and performing all traditional banking activities 24*7 without having to personally go to a bank branch to get work done. The growth of the digital ecosystem in India has been driven by a number of factors, including the government’s push towards digitalisation, an increase in internet and smartphone penetration, and the rise of e-commerce. According to DataReportal – Global Digital Insights, India had 806 million internet users and 1.12 billion cellular mobile connections in early 2025. The expanding internet network has led to a sharp increase in the use of digital payment methods, such as mobile wallets, UPI, and card payments.
Digital Payments have significantly increased in recent years as a result of coordinated efforts of the Government with all stakeholders. According to the finance ministry, the total digital payment transactions volume increased from 2,071 crore in FY 2017-18 to 18,737 crore in FY 2023-24 at a CAGR of 44%.
The unified payments interface (UPI) has revolutionized digital payments in the country. The UPI transactions have grown from 92 crore in 2017-18 to 13,116 crore in 2023-24, growing at an annual compound growth rate of 129%. According to ACI Worldwide Report 2023 about 46% of the global real time transactions are happening in India. UPI has been the major driving force in the overall growth of digital transactions in India accounting for about 70% of the digital payment transactions in 2023-24.
Non-performing assets decline sharply
The good performance of India’s banking sector in 2024-25 was largely driven by the sharp decline in non-performing assets (NPAs). The gross NPA ratio reached a 12-year low of 2.6% in September 2024, according to the Reserve Bank of India (RBI). This improvement was driven by factors like declining slippages, increased write-offs, and steady credit demand. The net NPA ratio was around 0.6%.
India’s financial system is bank dominated and, therefore sound health of the banking system is important for preserving financial stability. Backed by timely measures taken by the country’s central bank, balance sheets of scheduled commercial banks have been consistently improving in recent years, with multi-year low non-performing asset (NPA) ratios, higher provisioning, stronger capital positions and robust earnings. In turn, these developments are catalysing a broad-based and sustained credit expansion in the economy.
The rising non-performing assets (NPAs) had emerged as a persistent and multifaceted challenge within India's banking sector in the past. It was a persistent and pressing concern within the Indian banking sector, casting a long shadow over the country's financial stability and economic growth. NPAs, also known as bad loans, are loans or advances extended by banks that have ceased to generate income due to borrowers' inability or unwillingness to repay them. The accumulation of NPAs has far-reaching implications, affecting not only the financial health of banks but also the broader economic landscape of India.
A decline in NPAS generally indicates an improvement in asset quality for banks and signifies better loan repayment performance, reduced risk of losses, and increased financial stability. Lower NPAs mean banks have more capital available for lending, which can stimulate economic growth. However, the lowering down of NPAs has come at a significant cost. Banks have written off non-performing assets or bad loans worth about ₹16.35 lakh crore during the last 10 fiscal years up to 2023-24. The highest amount of ₹ 2,36,265 crore was written off during the financial year 2018-19 while NPAs worth ₹58,786 crore were written off in 2014-15, the lowest in the last 10 years. During 2023-24, banks writeen off bad loans of ₹1,70,270 crore, lower than ₹ 2,16,324 crore done i n the previous financial year.
As India now sets its sight on achieving a gross domestic product of seven billion-dollar by 2030, the banking sector once again needs to be positioned as the key facilitator of growth. Boosted by strong regulatory measures aimed at strengthening banking infrastructure coupled with tech-nological advancements and a rapidly evolving customer landscape, the banking industry is transforming at an unprecedented scale to meet the country’s increasing needs.
While challenges remain, including navigating a complex regulatory landscape and managing risks associated with digital adoption, the sector is expected to become more inclusive, efficient, and resilient.
Indian banks are increasingly integrating GenAI to improve customer engagement and operational efficiency. Experts believe that banking soon “Will Be Invisible, Connected, Insights-Driven, And Purposeful”. Exactly the ecosystem India visualizes for its banking sector in the coming years.
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