The bad loans of public sector banks have fallen to a decade low of 3.12% as on 30 September 2024 even as the financial sector has seen several policy reforms.

The gross non-performing assets (NPAs) of the state-run banks had peaked at 14.98% in March 2018.

The policy measures of the government include recognition, recapitalisation, resolution and reforms.

The reforms also increased the capital adequacy ratio of public sector banks to 15.43% in September 2024 from 11.45% in March 2015.

Since 2015, the government implemented a comprehensive 4Rs strategy of recognising NPAs transparently, resolution and recovery, recapitalising public sector banks and reforms in the financial system to address the challenges, the finance ministry said on Thursday.

Public sector banks recorded their highest-ever aggregate net profit of Rs 1.41 lakh crore in FY24 against Rs 1.05 lakh crore in FY23, it said, adding that the figure for the first half of FY25 was Rs 0.86 lakh crore.

In the last three years, public sector banks have paid total dividend of Rs 61,964 crore

“Public sector banks continue to expand their reach to every nook and corner of the country to deepen financial inclusion. Their capital base has strengthened and their asset quality has improved. Now they are able to go to market and access capital instead of depending upon the government for recapitalisation,” the ministry said.

A day before the ministry’s statement, leader of the Opposition Rahul Gandhi met a delegation from the All India Banking Officers Confederation. After the meeting he wrote on X (formerly Twitter), "The Modi government has turned these lifelines of the masses (public sector banks) into private financiers for only the rich and powerful corporations.”

Immediately, Finance Minister Nirmala Sitharaman reacted in a series of social media posts stating Gandhi’s claims as baseless. She said public sector banks were seeing a remarkable turnaround under the current government unlike the previous UPA government, under which “PSBs were treated as ‘ATMs’ for their cronies and shady businessmen”.

According to the finance ministry, Indian banks were on the growth path, with the number of branches increasing from 1,17,990 in March 2014 to 1,60,501 in September 2024 . Of the 1,60,501 branches, 1,00,686 were in rural and semi-urban areas.

Gross advances of scheduled commercial banks grew from Rs 8.5 lakh crore to Rs 61 lakh crore during 2004-2014, and to Rs 175 lakh crore in March 2024.

“The government of India has consistently supported the MSME (micro, small and medium enterprises) sector in terms of flow of credit at affordable rates through various initiatives. The MSME advances registered a CAGR of 15% during the last three years. Total MSME advances as on 31 March 2024 stood at Rs. 28.04 lakh crore, posting annual growth of 17.2%,” the finance ministry said.

To deepen financial inclusion in the country, 54 crore Jan Dhan accounts have been created and more than 52 crore collateral-free loans have been sanctioned under various financial inclusion schemes (PM Mudra, Stand-Up India, PM-SVANidhi, PM Vishwakarma), it added. 

Under the PM Mudra scheme, 68% of beneficiaries are women and under the PM-SVANidhi scheme, 44% of beneficiaries are women. The KCC Scheme, which aims to provide short-term crop loans to farmers, had 7.71 crore operative accounts as of September 2024, with a total outstanding of Rs. 9.88 lakh crore.

“The government has been proactively supporting the banking ecosystem and taking care of both business and employee welfare to maintain stability, transparency and growth. Over the past decade, multiple citizen-and-staff-centric reformative initiatives have been taken by the government in this direction,” the ministry said.

The government had also reformed human resources policies and welfare measures of banks with the aim of facilitating women employees and enduring fair and remunerative pay for all grades of employees, it added.