Public Sector Banks Poised to Achieve Historic Rs 2 Lakh Crore Profit Milestone
In a significant development for India's banking sector, public sector banks (PSBs) are anticipated to surpass the combined profit mark of Rs 2 lakh crore in the current financial year (FY26). This optimistic forecast was shared by Financial Services Secretary M Nagaraju, who attributed the strong performance to resilient balance sheets, steady credit expansion, and enhanced asset quality across the board.
Resilient Banking System Underpinned by Regulatory Oversight
Speaking exclusively to PTI, Nagaraju emphasized the robustness of the Indian banking system, which he described as a bellwether for the overall economy. He highlighted the critical role played by regulatory oversight and prudent risk management frameworks in maintaining stability.
"Banks are at the bellwether for the strength of the economy. Therefore, they are resilient. We have very prudent management systems in place under the regulator RBI. So we are not much worried about external factors negatively impacting our banking sector," Nagaraju stated, underscoring confidence in the sector's ability to withstand global economic pressures.
Steady Profit Trajectory and Growth Momentum
On the profitability outlook, Nagaraju projected that PSBs would comfortably cross the Rs 2 lakh crore profit threshold in FY26. "This year (ongoing financial year) we will cross Rs 2 lakh crore. We already touched almost Rs 1 lakh crore in the first half...I think we will cross Rs 2 lakh crore," he affirmed.
The profit growth trajectory of PSBs has been impressive over recent years. Combined profits escalated from Rs 1.05 lakh crore in FY23 to Rs 1.41 lakh crore in FY24, and further climbed to Rs 1.78 lakh crore in FY25. This upward trend is fueled by multiple factors, including better asset quality, sustained credit growth, strong capital adequacy, and improved return ratios.
Currently, PSB credit growth is robust at approximately 12 percent, while deposit growth remains healthy at around 10 percent, indicating a balanced and expanding financial ecosystem.
Significant Improvements in Asset Quality and Capital Strength
Asset quality indicators have shown remarkable enhancement across public sector banks. As of the end of September 2025, gross non-performing assets (NPAs) reached a record low of 2.30 percent, with net NPAs hovering around 3 percent.
Further strengthening the sector's financial health, the provisioning coverage ratio improved to 94.63 percent, and the capital adequacy ratio stood at a solid 15.96 percent at the close of the first half of the current financial year.
In terms of shareholder returns, PSBs declared dividends totaling Rs 34,990 crore in FY25, with the government's share amounting to Rs 22,699 crore. This represents a notable increase from the total dividend payout of Rs 27,830 crore in FY24, which included Rs 18,013 crore for the government.
Government Initiatives: Divestment and Capital Raising
During the current financial year, the government has actively mobilized resources through strategic stake dilution in select public sector banks. Specifically, it realized Rs 2,627.52 crore via an offer for sale (OFS) in Bank of Maharashtra and Rs 1,419.36 crore through an OFS in Indian Overseas Bank.
In a move to further bolster the capital base of PSBs, the Finance Ministry is evaluating a proposal to increase the foreign direct investment (FDI) limit from the current 20 percent to 49 percent. "We are still considering, and inter-ministerial consultation is on for raising FDI cap to 49 percent," Nagaraju confirmed.
Currently, FDI in PSBs is capped at 20 percent, whereas private sector banks can receive up to 74 percent foreign investment, with up to 49 percent permitted under the automatic route and any investments beyond that requiring government approval.
The collective performance and strategic initiatives underscore a transformative phase for India's public sector banking landscape, positioning it for sustained growth and stability in the coming years.
