PSU Banks Expected to Surpass Rs 2 Lakh Crore Profit in FY26, Says DFS Secretary M Nagaraju on Robust Credit Growth
Public sector banks (PSBs) in India are on track to achieve a remarkable milestone, with expectations to surpass a combined profit of Rs 2 lakh crore in the current financial year. This optimistic outlook is attributed to robust balance sheets, consistent credit growth, and enhanced asset quality, according to Financial Services Secretary M Nagaraju. He emphasized the resilience of the Indian banking system, bolstered by effective regulatory oversight and sound risk management practices, which mitigate concerns over external economic challenges.
Profit Trajectory and Growth Momentum
M Nagaraju highlighted that PSBs are poised to exceed the Rs 2 lakh crore profit mark in the ongoing financial year, following a strong performance in the first half. He noted that PSBs recorded nearly Rs 1 lakh crore in profits during this period. The trajectory of profitability has been impressive, with combined profits rising from Rs 1.05 lakh crore in FY23 to Rs 1.41 lakh crore in FY24, and further increasing to Rs 1.78 lakh crore in FY25. This growth is driven by improved asset quality, robust credit expansion, and strong capital adequacy ratios. Currently, PSBs are experiencing a credit growth rate of approximately 12 percent, while deposit growth remains solid at around 10 percent.
Asset Quality and Capital Strength Improve
The asset quality of PSBs has seen significant improvements, with gross non-performing assets (NPA) dropping to a record low of 2.30 percent and net NPA around 3 percent as of September 2025. The provisioning coverage ratio has also strengthened, reaching 94.63 percent, while the capital adequacy ratio stood at 15.96 percent at the end of the first half of the current financial year. Furthermore, PSBs declared dividends totaling Rs 34,990 crore in FY25, with the government receiving Rs 22,699 crore of that amount. This marks an increase from the previous year’s total dividend payout of Rs 27,830 crore, which included Rs 18,013 crore for the government.
Government Divestment and Capital Raising
In the current financial year, the Indian government has taken steps to mobilize resources through stake dilution in select PSBs. Notably, the government raised Rs 2,627.52 crore through an offer for sale (OFS) in Bank of Maharashtra and Rs 1,419.36 crore through OFS in Indian Overseas Bank. Additionally, the Finance Ministry is considering a proposal to increase the foreign direct investment (FDI) limit in PSBs from the current 20 percent to 49 percent, aiming to bolster their capital base. Nagaraju confirmed that discussions are ongoing regarding this potential increase, which would align PSBs more closely with private sector banks, where foreign investment can reach up to 74 percent, with 49 percent allowed under the automatic route.
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