Net profit of the Indian banking sector for the first time crossed Rs 3 lakh crore in 2023-24, surpassing Rs 1.1 lakh crore profit of IT services - traditionally the country’s most profitable sector in recent times. Cumulative net profit of public sector banks grew 34 percent, achieving a record high of Rs 1.4 lakh crore while private sector banks saw their net profit increasing by 42 percent to nearly Rs 1.7 lakh crore. These figures are impressive.

Prime Minister Narendra Modi has praised this "remarkable" turnaround in the health of the banking sector, adding that when the NPA government came to power, Indian banks were reeling with losses and high NPAs and their doors were closed for the poor. He pointed out that the government worked on the strategy of recognition, resolution and recapitalisation, leading to comprehensive reform of the banking sector.

Notably, gross non-performing asset ratio of scheduled commercial banks reduced by 21.1 percent y-o-y to Rs. 4.85 lakh crore as of December 31, 2023. No doubt, lower slippages, steady recoveries and write-offs contribute to this decreasing bank NPA, but at the same time it must be admitted that several steps by the government and the RBI - including a capital infusion of 3.5 lakh crore and the Insolvency and Bankruptcy Code of 2016 – have played a key role here.

NPA has remained a significant problem for banks for a long time with Indian banks suffering from a twin balance sheet problem, but now with a clean balance sheet, we can expect the Indian banking sector to provide higher support to the country’s economic growth. At the same time, with declining NPA of banks, we can expect further improvement in the quality of their MSME portfolio.

I invite your opinions.