State banks post record ₹1.98 lakh crore profit

Public sector banks reported their best-ever net profit and lowest-ever bad-loan ratios in FY2025-26 — a fourth straight year in the black.

What happened

• The Ministry of Finance released the consolidated FY2025-26 (year ended 31 March 2026) financial scorecard of India's public sector banks (PSBs).
• Aggregate net profit hit an all-time high of ₹1.98 lakh crore, up 11.1% year-on-year — the fourth consecutive year of aggregate profitability for the group.
• Asset quality reached historic best levels: gross NPA ratio fell to 1.93% and net NPA ratio to 0.39% as on 31 March 2026.
• Total business crossed ₹283.3 lakh crore (up 12.8%), with gross advances at ₹127 lakh crore (up 15.7%) and deposits at ₹156.3 lakh crore (up 10.6%).
• Capital strength stayed comfortable — the aggregate capital adequacy ratio (CRAR) was 16.6%, far above the 11.5% regulatory floor.
• Credit to the Retail, Agriculture and MSME (RAM) segments grew strongly, signalling that the lending was broad-based rather than concentrated in large corporates.

Background & context

To read these numbers the way an examiner does, it helps to place them in the arc of the last decade of Indian banking. Public sector banks are the banks in which the Government of India holds majority ownership — the State Bank of India and the nationalised banks. Bank nationalisation happened in two waves, 1969 (14 major banks) and 1980 (6 more), giving the state the commanding share of deposits and credit that it still holds. The administering chain runs from the Department of Financial Services (DFS) in the Ministry of Finance, which is the Government's shareholder arm, while prudential regulation and supervision sit with the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949 and the RBI Act, 1934.

The mid-2010s told the opposite story to today's release. After the Asset Quality Review (AQR) that the RBI began in 2015 forced banks to recognise loans that had been "evergreened" rather than acknowledged, PSB gross NPAs climbed to roughly 14.6% in March 2018 — a stressed-assets crisis concentrated in infrastructure, power, steel and large corporate exposures. The group posted heavy aggregate losses in those years. The recovery since then is what makes the FY2025-26 figures examinable: a near-15% gross-NPA peak has been brought down to under 2%, and a loss-making group now reports a record profit. Understanding the reform machinery behind that turnaround is the real syllabus content.

Four reform tracks did the work. First, the Government's "4R" strategy — Recognition (honest AQR-driven NPA recognition), Resolution, Recapitalisation and Reforms. Second, recapitalisation: the Centre infused capital through recapitalisation bonds and budgetary support (over ₹3 lakh crore across FY2017-21) to rebuild eroded capital buffers. Third, a new resolution architecture — the Insolvency and Bankruptcy Code (IBC), 2016, which created a time-bound, creditor-driven process to recover dues, alongside the SARFAESI Act, 2002 and the Debt Recovery Tribunals set up under the RDDBFI Act, 1993. Fourth, consolidation: a series of mergers shrank the number of PSBs from 27 to 12 by April 2020, the largest being the merger of five associate banks and Bharatiya Mahila Bank into SBI (2017) and the 2019 amalgamations (for example, Punjab National Bank absorbing Oriental Bank of Commerce and United Bank of India, and Canara Bank absorbing Syndicate Bank). Governance reforms rode on the EASE (Enhanced Access and Service Excellence) reform agenda, a common reform framework benchmarking PSBs on responsible banking, customer responsiveness and credit off-take. The FY2025-26 release is, in effect, the dividend from that decade-long clean-up.

The same banks are also the delivery rails for financial inclusion. The bulk of Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts, and the credit under MUDRA, Stand-Up India and the Kisan Credit Card, runs through PSBs; the RAM-led credit growth in this release is partly that mandate showing up in the numbers. So a strong PSB balance sheet is not only a banking story — it is the precondition for the welfare-credit architecture to keep functioning without fresh stress.

For Prelims

• Aggregate net profit FY2025-26: ₹1.98 lakh crore — all-time high, up 11.1% y-o-y, fourth straight profitable year.
• Aggregate operating profit: ₹3.21 lakh crore (operating profit is profit before provisions and tax; net profit is after).
• Gross NPA ratio: 1.93%; Net NPA ratio: 0.39% — both historic lows (against a ~14.6% GNPA peak in 2018).
• Provision Coverage Ratio (PCR): above 90% for every individual PSB — the cushion set aside against bad loans.
• Slippage ratio: 0.7% (fresh loans turning bad as a share of standard advances); total recoveries, including written-off accounts, ₹86,971 crore.
• Total business: ₹283.3 lakh crore (up 12.8%); gross advances ₹127 lakh crore (up 15.7%); aggregate deposits ₹156.3 lakh crore (up 10.6%).
• RAM credit growth: Retail 18.1% · Agriculture 15.5% · MSME 18.2%.
• CRAR (capital adequacy): 16.6% against the 11.5% regulatory minimum; capital raising of ₹50,551 crore during the year; cost-to-income ratio improved to 49.67%.

The label glossary the questions turn on:

The full set of public sector banks today (12): State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, Bank of India, Indian Bank, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab & Sind Bank. A common "how many / which of these" trap pairs a private bank (HDFC, ICICI, Axis) or a small-finance bank with this list — none of those are PSBs.

What this is NOT: a record profit is not the same as a record profitability in efficiency terms — read net profit alongside the cost-to-income and return ratios. Operating profit ≠ net profit: operating profit is struck before provisions and tax, so a fall in provisioning (as bad loans shrink) lifts net profit faster than operating profit. The CRAR floor of 11.5% is not 9%: the headline minimum is 9%, but the capital conservation buffer of 2.5% takes the effective requirement to 11.5%. And a "written-off" loan is not a "waived" loan — write-off is a balance-sheet/tax step; recovery efforts continue, which is why ₹86,971 crore of recoveries includes written-off accounts.

Why it matters

The release matters because the health of public sector banks is a proxy for the credit-supply side of the economy. PSBs still intermediate a large share of deposits and lending, and they carry the bulk of priority-sector and developmental lending — agriculture, MSMEs and government welfare-credit schemes flow disproportionately through them. A banking system weighed down by bad loans cannot lend; the "twin balance-sheet problem" of the late 2010s — stressed corporate borrowers facing stressed bank lenders — was a direct drag on the investment cycle. Clean books, thick capital buffers (CRAR 16.6%) and high provision coverage mean the banks can now expand credit without rebuilding a stress pile, which is what the 15.7% rise in gross advances and the broad RAM growth signal. For the fisc, profitable and well-capitalised PSBs reduce the need for taxpayer recapitalisation and can instead pay dividends to the Government. The data set is the empirical evidence for arguments about whether the post-2015 banking reforms worked.

How it compares — PSBs versus private banks. The examinable nuance is that private banks historically ran lower NPAs and higher return-on-assets than PSBs, and the late-2010s stress widened that gap. The significance of an under-2% gross-NPA reading for PSBs is precisely that the gap with private peers has narrowed sharply: the part of the system that was the problem is no longer the laggard on asset quality. The remaining debate is on efficiency and return ratios — return on assets, net interest margin and the cost-to-income ratio (49.67% here) — where the convergence is more gradual than on the bad-loan headline. Reading the profit figure beside these ratios is what separates a complete answer from a one-number one.

For Mains