BALANCED SHEET

Strong credit demand and low NPAs help banks make record profits; but there are many challenges ahead

- NACHIKET KELKAR

 

The year 2018 was a particularly bad one for India's banks losses ballooned and bad debt was spiralling out of control. The gross non-performing assets (loans that have gone bad) of scheduled commercial banks were 11.5 per cent in March 2018, and that of state-owned lenders were 14.6 per cent, prompting the Reserve Bank to initiate strong measures to save the sector from sinking.

Five years later, however, things cannot be more different. Gross NPAs of scheduled commercial banks in March 2023 are 3.9 per cent, the lowest in a decade. The net NPAs were just 1 per cent, a level not seen since 2011. And profits are soaring. The cumulative profits of public sector banks were more than ₹1 lakh crore in 2022-23, a sharp contrast with the ₹85,000 crore net loss they reported in 2017-18.

One of the many reforms that the government initiated in the banking sector in the past few years was consolidation of public sector banks. Several small PSU lenders were merged with larger ones-Dena Bank and Vijaya Bank were merged into Bank of Baroda; Andhra Bank and Corporation Bank were merged into Union Bank of India; United Bank and Oriental Bank of Commerce were merged into Punjab National Bank; Allahabad Bank was merged into Indian Bank; and Canara Bank took over Syndicate Bank. The stateowned banks have shrunk from 27 in March 2017 to just 12 now.

"This strengthened the market position of many of these banks," said Ajit Velonie, senior director, CRISIL Ratings. "This has also led to greater efficiency in operations and capital utilisation."