In FY24, the banking sector’s net profit surpassed Rs. 3 lakh crore for the first time. The combined net profit of listed public and private sector banks increased by 39%, reaching Rs. 3.1 lakh crore, compared to Rs. 2.2 lakh crore in FY23.
Indian banks have experienced robust earnings growth in the fourth quarter of FY24, driven by strong loan growth. The rise in net profits for listed banks was supported by an increase in other income and credit growth. However, net interest margins showed mixed trends, primarily impacted by the rising cost of funds.
Prime Minister Narendra Modi announced that the combined net profit of listed public and private sector banks in FY24 surged by 39% year-on-year (YoY), surpassing ₹3 lakh crore for the first time in history.
A report highlighted that in FY24, 26 private lenders achieved a net profit of ₹1.78 lakh crore, while 12 public sector banks recorded a net profit of ₹1.41 lakh crore. This notable enhancement in the health of India’s banking sector has received commendation from Prime Minister Narendra Modi. Describing it as a “remarkable turnaround,” PM Modi emphasized that this improvement will facilitate better credit availability for the poor, farmers, and micro, small, and medium enterprises (MSMEs).
“In a remarkable turnaround in the last 10 years, India’s banking sector net profit crosses ₹3 lakh crore for the first time ever. When we came to power, our banks were reeling with losses and high NPAs due to the phone-banking policy of UPA. The doors of the banks were closed for the poor. This improvement in the health of banks will help improve credit availability to our poor, farmers and MSMEs,” PM Modi said in a post on X on May 20.
Public sector banks achieved a record net profit of Rs. 1.4 lakh crore during the year, marking a 34% increase compared to the previous year. Meanwhile, private sector banks boosted their net profit to nearly Rs. 1.7 lakh crore, up from Rs. 1.2 lakh crore a year ago.
As a consequence, the disparity in earnings between the two sectors has expanded.
Public sector banks recorded a historic net profit of Rs. 1.4 lakh crore during the year, representing a 34% rise from the previous year. In the same period, private sector banks increased their net profit to nearly Rs. 1.7 lakh crore, up from Rs. 1.2 lakh crore the year before.
Meanwhile, market consensus has adjusted the FY25 net profit estimates for state-run lenders upwards by a mid-single digit percentage, while estimates for private banks have remained largely stable. In Q4FY24, banks reported a 9% growth in core Pre-Provisions Operating Profit (PPOP) and a 21% year-on-year growth in Profit After Tax (PAT). Banks with high loan-to-deposit ratios (LDR) lost loan market share in FY24 and experienced a decline in corporate loans in Q4 due to weak pricing power.
IIFL Securities anticipates that system loan growth will decelerate to 13% in FY25. Due to private banks expanding into Sub-Urban and Rural (SURU) areas and the weakening of government agency business, public sector banks lost 20-50 basis points of deposit market share in FY24.
Assuming no rate cuts in FY25, the brokerage firm’s residual re-pricing framework indicates that spreads will further decline by 5-17 basis points for select banks. ICICI Bank, Kotak Mahindra Bank, and State Bank of India (SBI) are expected to experience higher net interest margin (NIM) compression, whereas Axis Bank, HDFC Bank, and Bank of Baroda will see lower compression. In contrast, RBL Bank, Federal Bank, and IndusInd Bank are anticipated to see improvements. Although slippages in agriculture, MSME, and microfinance institutions (MFI) have increased, overall credit costs remain low. Public sector banks have seen positive earnings revisions; however, the cyclical advantages of low loan-to-deposit ratios (LDRs), better NIM trajectory, and low credit costs are likely to diminish within a few quarters, the firm added.
Conclusion
The Indian banking sector has witnessed a remarkable transformation over the past decade, marked by significant growth in net profits and improvements in credit availability. However, challenges such as declining net interest margins, slowing loan growth, and market shifts towards private banks and rural areas indicate the need for ongoing adaptation and strategic planning within the sector.
