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How healthy were Indian banks in the year 2024-25?

3 Jul 2025 , 11:48 AM

STRONG INDIAN BANKS AMIDST GLOBAL HEADWINDS

The RBI released the second instalment of its Financial Stability Report (FSR) on June 30, 2025. The Financial Stability report is presented twice a year by RBI. The first FSR presented on the last day of December covers the first half up to September-end. The second FSR presented on the last day of June (current report) covers the second half and full fiscal year.

The FSR is critical because it looks at banks overall in terms of deposit growth, loan growth, profitability, capital adequacy, asset quality, sectoral exposure, and provision coverage ratios (PCR). These ratios are further broken into ratios for private banks, PSBs, and foreign banks for a more granular picture. Here is what the RBI FSR for H2-FY25 says.

DEPOSIT AND CREDIT GROWTH FOR FY25

Let us start with deposit growth for the period ending March 2025. Overall deposit growth of all scheduled commercial banks (SCBs) stood at 10.7%, which is lower than the last 3 sequential quarters. However, while the deposits of private banks grew in double digits, the PSBs and foreign banks saw single-digit growth in deposits. Within deposits, CASA grew 6.2% overall, while time deposits grew 12.5% overall, showing where the traction is. Foreign banks had the best CASA growth, followed by private banks and PSBs. Private banks dominated the time deposits growth in FY25, hinting at higher cost of funds.

Credit growth at 11.0% overall for FY25 was still the lowest compared to the last 3 sequential quarters. Interestingly, PSBs and foreign banks showed much better credit growth in FY25 compared to private banks. If you look at the overall lending portfolio of banks, personal loans continued to dominate at over 33%, followed by services at 29.8% and industry at 22.6%. This is also due to companies diversifying borrowing sources.

ASSET QUALITY OF BANKS IN FY25

One of the most important aspects of banks is the quality of assets. If you look at the last 4 sequential quarters, there has been a progressive reduction in gross NPAs and also in net NPAs. For all SCBs, gross NPAs as of FY25 stood at 2.5%, while net NPAs stood at 0.5%. That is a big improvement over the last 10 years of stress. On gross NPAs, PSBs are still at 2.8% while private banks are at 1.8%. On net NPAs, both PSBs and private banks are at par.

The half yearly slippage ratios for the banking sector continues to remain under 1%. The provision coverage ratio (PCR) has been stable at 76.3% as of March 2025. Incidentally, the private banks have the lowest PCR; while the PCR for PSBs and for foreign banks is much higher. Also, the private banks are having a much higher ratio of write-offs to gross NPAs at 45.3%; against the banking average of 31.8%. PSBs have the lowest write-off to GNPA ratio of 25.5%. For banks, pressure of bad and stressed loans is coming largely from agriculture, followed by industry and services. Personal loans have the lowest stress.

CAPITAL ADEQUACY AND PROFITABILITY OF BANKS

Let us look at how banks have performed in FY25 in terms of capital adequacy and profitability parameters. Capital adequacy (CRAR) of all SCBs stood at a healthy 17.5%. it is above 16% for all categories of banks. Even the Tier-1 capital adequacy stands at a healthy 14.7%, although in terms of Tier-1 capital; the situation is a lot healthier for private banks and foreign banks, compared to PSBs. Let us now turn to profitability of banks.

For banks overall, the cost of funds stands at 5.7% and yield on assets at 8.6%, which is comfortable. Ratios are stable across all categories of banks. Annualized net interest margins have seen some pressure at 3.5% due to rate cuts, but it stands at 4.1% for private banks and 3.0% for PSBs. The SCBs, overall, saw annualized ROE of a healthy 13.6% and return on assets (ROA) of 1.4%. While PSBs score higher on ROE than private banks, it is the private banks that score on ROA.

Finally, the banks were also exposed to a stress test on the impact of a worst-case scenario on profits, NPAs, and credit risk. The impact, as it stands today, is likely to be minimal!

Related Tags

  • AssetQuality
  • FinancialStabilityReport
  • FSR
  • GNPA
  • IndianBanks
  • NIM
  • NNPA
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