Banks’ Profitability Rises for 6th Consecutive Year in FY24: RBI Report

Indian banks have reported improvements in their financial performance during the 2023-24 fiscal year. The Reserve Bank of India (RBI) has noted a notable decrease in bad loans and a rise in profits, reflecting robust economic conditions.

Profit Growth in Indian Banks

Scheduled commercial banks experienced a remarkable net profit increase of 32.8%. Profits reached ₹3.49 lakh crore, marking the sixth consecutive year of profit growth. This trend showcases the banks’ ability to navigate challenging economic landscapes effectively.

Decline in Bad Loans

The gross non-performing assets (GNPA) ratio fell to 2.7% by March 2024. This represents the lowest level in 13 years. By September 2024, the GNPA ratio further improved to 2.5%. Such reductions indicate enhanced asset quality and effective risk management strategies.

Indian banks maintained a strong capital position throughout the fiscal year. Key metrics like the leverage ratio and capital-to-risk-weighted assets ratio (CRAR) demonstrated stability. This solid capital foundation supports ongoing lending and growth initiatives.

Net Bad Loans Reduction

Net bad loans decreased to 0.57% of total loans by September 2024. This decline is an improvement from 0.62% in March. Stronger provisions for potential losses have contributed to this positive trend, enhancing overall financial resilience.

Non-Banking Financial Companies (NBFCs) Performance

Non-bank financial companies also reported improved asset quality in 2023-24. They achieved steady double-digit growth in their balance sheets. Strengthened credit growth, better loan quality, and improved profitability characterise their financial health.

The overall financial stability of Indian banks and NBFCs signals a positive outlook for the sector. Continued growth in loans and deposits supports this trend, reflecting a robust economic environment conducive to banking operations.

GKToday Notes:

1. GNPA: Gross Non-Performing Assets (GNPA) represent loans that are not being repaid. The ratio fell to 2.5% by September 2024, indicating improved asset quality and risk management.
2. CRAR: Capital to Risk-Weighted Assets Ratio (CRAR) measures a bank’s capital relative to its risk. A stable CRAR indicates a strong capital position, supporting ongoing lending and growth initiatives.
3. NBFCs: Non-Banking Financial Companies (NBFCs) provide financial services without a banking licence. In 2023-24, they showed improved asset quality and steady double-digit growth, enhancing their financial health.
4. RBI: The Reserve Bank of India (RBI) is India’s central bank. It regulates the banking sector and oversees monetary policy, ensuring financial stability and economic growth in the country.