The Economic Survey 2024 has highlighted the strong performance and resilience of India’s banking sector, showcasing notable improvements in asset quality, capital adequacy, and profitability.
“Credit growth remains robust, mainly driven by lending to services and personal loans. Deposit growth has also gained momentum due to the transmission of previous rate increases, resulting in the repricing of deposits and higher accretion to term deposits. Lending by non-banking financial companies (NBFCs) accelerated, led by personal loans and loans to the industry, and their asset quality has improved,” as stated in the Economic Survey 2024.
Bank credit disbursal by Scheduled Commercial Banks (SCBs) reached Rs 164.3 lakh crore at the end of March 2024, marking a 20.2% growth from the previous year. This momentum continued with 19% and 19.8% YoY growth in April and May 2024, respectively.
Agricultural credit saw substantial growth, with disbursals rising to Rs 20.7 lakh crore in FY24, driven by the Kisan Credit Card (KCC) scheme.
Industrial credit growth accelerated to 8.5% in March 2024, compared to 5.2% a year earlier, bolstered by increased lending to MSMEs under the Emergency Credit Linked Guarantee Scheme (ECLGS). The Open Credit Enablement Network (OCEN) is expected to further enhance credit flow to the MSME sector.
Asset Quality
The gross non-performing assets (GNPA) ratio of SCBs fell to a 12-year low of 2.8% by March 2024, from 11.2% in FY18. This decline was due to better borrower selection, effective debt recovery, and heightened debt awareness. The GNPA ratio for the agriculture sector, while still high at 6.5%, showed consistent improvement. The same was a 7 year low of 5 per cent in sept 2022, as per the Economic Survey 2023.
Profitability and Capital Adequacy
The net interest margin (NIM) of SCBs remained robust at 3.6% in March 2024. Profit after tax increased by 32.5% YoY, driven by higher net interest income and lower additional provisions. SCBs’ capital to risk-weighted assets ratio (CRAR) improved to 16.8% by March 2024, with all banks meeting the Common Equity Tier 1 (CET-1) ratio requirement of 13.9%.
Deposit Growth
Deposit growth gained momentum, driven by the repricing of deposits and higher term deposit accretion, with 56.9% of deposits held by Public Sector Banks (PSBs).
Macro- and micro-prudential measures have enhanced the risk absorption capacity of banks. The recapitalisation and balance sheet clean-up efforts over the past years have significantly improved various banking indicators.
