Good show by banks as most register a rise in profit, but challenges ahead

Overall, public sector banks have put up a better show than private banks on most parameters

As the first quarter of the current financial year comes to a close next week, let’s look at how listed private and public sector banks (PSBs) have done in the last quarter of financial year 2024-25 (January-March 2025).

 

Barring seven private and just one public sector bank, all have recorded a rise in operating profits. Overall, the operating profit of listed banks (excluding small finance banks) was Rs 1,55,704 crore in the March quarter, up 4.45 per cent from the year-ago quarter. While private banks’ collective operating profit dropped 2.9 per cent, for PSBs, it rose 12.1 per cent. All figures are rounded off.

 

A similar trend is visible in net profit. After setting aside funds for provisions and contingencies, listed banks’ overall net profit in the March quarter rose 4.35 per cent year-on-year, to Rs 93,936 crore. Again, seven private banks and one PSB recorded a drop in net profit – though not the same set that has seen a drop in operating profit. Private banks’ net profit dropped 3.4 per cent, while PSBs’ rose 12.9 per cent.

 

At least 12 banks saw a drop in provision and contingencies. Unlike in the past, the industry didn’t need to allocate huge funds to address bad loans since there’s no dramatic deterioration in the quality of assets. Overall, listed banks provided Rs 31,367 crore in the March 2025 quarter versus Rs 34,691 crore in March 2024 – a drop of close to 10 per cent. While private banks lowered their spending on provision and contingencies during the period by 33 per cent, PSBs’ provision rose by over 24 per cent.

 

Year-on-year, in absolute terms, gross non-performing assets (NPAs) of these banks dropped by 11.2 per cent to Rs 4.17 trillion. While PSBs recorded a 16.5 per cent drop, private banks’ gross NPAs rose by 2.5 per cent. After provisions, overall net NPAs dropped to Rs 90,517 crore in March 2025, 12.75 per cent down from Rs 1.04 trillion in March 2024. While PSBs recorded a 23.3 per cent drop in net NPAs, private banks’ net NPAs rose 11.7 per cent.

 

The Indian banking industry had recorded the highest gross NPAs (Rs 10.39 trillion) and net NPAs (Rs 4.02 trillion) in March 2008. This was after the Reserve Bank of India (RBI) initiated the first-of-its-kind asset quality review, forcing banks to come up clean.

 

In percentage terms, only five banks – all from the private sector – have shown a rise in gross NPAs. The sharpest rise was by IndusInd Bank Ltd – from 1.92 per cent to 3.13 per cent. Bandhan Bank Ltd had the highest gross NPAs in the March quarter – 4.71 per cent. It’s the only bank to have over 4 per cent gross NPAs. Besides IndusInd Bank, four private banks and six PSBs had over 3 per cent but less than 4 per cent gross NPAs. Among PSBs, Punjab National Bank had the highest gross NPAs (3.95 per cent).

 

When it comes to net NPAs, six banks – all private – recorded a rise. Only four had more than 1 per cent net NPAs. They are Karnataka Bank Ltd (1.31 per cent), Bandhan Bank (1.28 per cent), Citi Union Bank Ltd (1.25 per cent), and DCB Bank Ltd (1.12 per cent).  

 

The list of banks with less than 0.5 per cent net NPAs includes IDBI Bank Ltd (0.15 per cent), Bank of Maharashtra (0.18 per cent), Indian Bank (0.19 per cent), Karur Vysya Bank Ltd (0.2 per cent), RBL Bank Ltd (0.29 per cent), Yes Bank Ltd (0.3 per cent), Kotak Mahindra Bank Ltd (0.31 per cent), Axis Bank Ltd (0.33 per cent), Indian Overseas Bank (0.37 per cent), Punjab National Bank (0.4 per cent), ICICI Bank Ltd (0.42 per cent), HDFC Bank Ltd (0.43 per cent), Federal Bank Ltd (0.44 per cent), and State Bank of India (0.47 per cent). Uco Bank has 0.5 per cent net NPAs.

 

Incidentally, the RBI’s December 2024 Financial Stability Report, the industry’s bi-annual health check, had pointed out that the gross NPAs of scheduled commercial banks had declined to a 12-year low of 2.6 per cent in September 2023, and net NPAs had remained around 0.6 per cent. It also said that the industry’s provision coverage ratio had improved to 77 per cent in September 2024, largely due to proactive provisioning by PSBs. 

 

Lower NPAs and higher provision coverage denote the resilience of the system. The key to profitability is a bank’s net interest margin (NIM) – loosely the difference between what it pays to depositors for their money and what it earns from borrowers.

 

Year-on-year, very few banks have been able to raise their NIM. Among those that have are HDFC Bank (from 3.4 per cent to 3.54 per cent), Yes Bank (2.4 per cent to 2.5 per cent), Punjab & Sind Bank (2.32 per cent to 3.19 per cent), and Dhanlaxmi Bank Ltd (3.22 per cent to 3.46 per cent). Others, such as Jammu & Kashmir Bank Ltd, India Overseas Bank, Indian Bank, Bank of Maharashtra and ICICI Bank, too, have raised their NIM over the year, but marginally. For instance, ICICI Bank’s NIM has risen by just 1 basis point. One basis point is a hundredth of a percentage point.

 

Bandhan Bank enjoys the highest NIM (6.7 per cent), followed by IDFC First Bank Ltd (5.95 per cent), Kotak Mahindra Bank (4.97 per cent), RBL Bank (4.89 per cent), ICICI Bank (4.41 per cent), Karur Vysya Bank (4.05 per cent), Bank of Maharashtra (4.01 per cent) and IDBI Bank (4 per cent). No other bank had 4 per cent or higher NIM. Jammu & Kashmir Bank continues to have the lowest NIM (0.97 per cent); IndusInd Bank has reported the sharpest fall in NIM – from 4.26 per cent in March 2024 to 2.25 per cent in March 2025.

 

Both earnings from loans and cost of deposits influence NIM. This is why low-cost current and savings accounts (Casa) is critical for a bank’s profitability. In FY25, Casa slipped for every bank, barring three – Yes Bank, Federal Bank Ltd and Bank of Maharashtra. Bank of Maharashtra, a PSB, raised it from 52.73 per cent to 53.28 per cent of deposits; Yes Bank upped it from 30.9 per cent to 34.3 per cent; and Federal Bank, from 29.38 per cent to 30.23 per cent.

 

Following Bank of Maharashtra, which has the highest Casa, are Central Bank (48.91 per cent), Jammu & Kashmir Bank (47.01 per cent), IDFC First Bank (46.9 per cent), IDBI Bank (46.56 per cent), Indian Overseas Bank (43.64 per cent), Kotak Mahindra Bank (43 per cent), Axis Bank (41 per cent), Bank of India (40.28 percent) and Indian Bank (40.17 per cent). Casa is below 40 per cent for all other banks. Both State Bank of India and Bank of Baroda have 39.97 per cent each. Bandhan Bank and IndusInd Bank have recorded the sharpest fall in Casa during the year.

 

Overall, on most parameters, PSBs have fared better than their private peers. They have also outpaced private banks in loan growth in FY25 – a first in 14 years.

 

While the banking system is under pressure to push growth in credit (for the fortnight ended May 30, credit growth was at a three-year low of 8.97 per cent), maintaining profitability will be tough for most banks since margin will be under further pressure. Following a 1 percentage point policy rate cut, they have no choice but to cut the rates for external benchmark-linked loans. Can they slash deposit rates by the same margin? Even if a few can, existing deposits will continue to earn old rates.

 

Profitability apart, maintaining NIM and asset quality are the challenges ahead. All three are interlinked.

 

PS: In last week’s column, I wrongly attributed a quote to former RBI governor Shaktikanta Das. The inadvertent error is regretted  The writer is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in.  X: @TamalBandyo