India’s public sector banks (PSBs) delivered another year of strong financial performance in FY2025-26, powered by robust credit growth, sharply improved asset quality and record profitability, underlining the sector’s growing strength in supporting the country’s expanding economy.
The aggregate business of PSBs rose 12.8% year-on-year to ₹283.3 lakh crore as of March 31, 2026, driven by healthy growth in both deposits and advances.
Aggregate deposits increased 10.6% to ₹156.3 lakh crore, reflecting continued customer confidence and strong mobilisation efforts by state-run banks. Gross advances climbed 15.7% to ₹127 lakh crore, indicating sustained demand for credit across sectors.
Retail, MSME and agriculture lead credit growth
Public sector lenders witnessed broad-based expansion across the Retail, Agriculture and MSME (RAM) segments during the year.
Retail advances grew 18.1%, while MSME lending expanded 18.2%. Agriculture credit also recorded healthy growth of 15.5%, highlighting the continued focus of PSBs on entrepreneurship, financial inclusion and grassroots economic development.
The strong momentum in RAM lending comes at a time when banks are increasingly leveraging digital platforms and data-driven underwriting to expand access to formal credit.
Asset quality improves to historic best levels
PSBs reported their best-ever asset quality metrics during FY26, with gross non-performing assets (GNPA) ratio declining to 1.93% and net NPA ratio falling sharply to 0.39%.
The banking sector also maintained strong provisioning buffers, with every PSB reporting provisioning coverage ratios above 90%, reflecting prudent risk management and stronger balance-sheet resilience.
Fresh slippages continued to moderate during the year, with the slippage ratio improving to 0.7%.
Meanwhile, total recoveries, including those from written-off accounts, stood at ₹86,971 crore, indicating stronger recovery systems and improved borrower discipline.
Profitability hits record high
Improved asset quality, steady credit expansion and higher income helped PSBs post record earnings during FY26.
Aggregate operating profit touched ₹3.21 lakh crore, while aggregate net profit rose 11.1% year-on-year to an all-time high of ₹1.98 lakh crore.
This marks the fourth consecutive year of overall profitability for the public sector banking ecosystem, a sharp turnaround from the stress-laden years marked by elevated bad loans and weak capital positions.
Capital buffers Stay Strong
The capital position of PSBs remained healthy during the year, with aggregate Capital to Risk Weighted Assets Ratio (CRAR) improving to 16.6%, comfortably above the regulatory requirement of 11.5%.
The improved capital adequacy was supported by internal accruals, retained earnings and capital raising worth ₹50,551 crore during FY26.
The stronger capital base is expected to support future lending growth and provide additional resilience amid global economic uncertainties.
Digital push improves efficiency
Operational efficiency also improved across PSBs, with the aggregate cost-to-income ratio improving to 49.67%.
The gains were attributed to better cost management, technology adoption and ongoing digital transformation initiatives undertaken by banks in recent years.
Government-led reforms aimed at improving governance standards, strengthening credit discipline and expanding access to formal banking have also played a key role in the sector’s transformation.
With stronger balance sheets, improved profitability and historically low stressed assets, PSBs are now better positioned to support India’s long-term economic growth ambitions and contribute to the country’s vision of becoming a developed economy by 2047.