Summary – SESSION-1 | Banking Law

This post presents concise summaries of –
Reading- 1 | “Indian Banks to Benefit from Likely Uptick in Loan Growth as Profits Rise”
Reading-2 | “FinMin for Creation of Two Globally Competitive Banks as Part of Viksit Bharat Vision”

Reading- 1 | “Indian Banks to Benefit from Likely Uptick in Loan Growth as Profits Rise”

This S&P Global Market Intelligence report analyzes the performance of Indian banks for the fiscal year ending March 2025 and provides projections for future growth, highlighting improving market conditions and divergent prospects between public and private sector banks.

Key Financial Performance Highlights

Strong Profit Growth Across Major Banks
All six largest Indian banks (both public and private sector) reported net income growth for fiscal year 2025. State Bank of India (SBI), the country’s largest lender, achieved a 16.1% increase in net income to ₹709.01 billion, maintaining a net interest margin of 2.81%. HDFC Bank, India’s largest private sector bank, posted a 10.7% growth in net income with a higher net interest margin of 3.45%.

Loan Growth Recovery Expected
While loan growth moderated in fiscal 2025, with the six major banks averaging 11.29% expansion (down from 21.18% in the previous year), prospects are improving. Analysts project loan growth to accelerate to slightly above 12% in fiscal 2026 and 13% in fiscal 2027.

Economic Context and Policy Support

Improving Liquidity Environment
The Reserve Bank of India (RBI) implemented several supportive measures:

50 basis point cut in cash reserve ratio
Rollback of increased risk weights on unsecured consumer lending and NBFC lending
Rate cuts totaling 50 basis points (25 basis points each in February and April 2025)
Liquidity injection of approximately ₹6.9 trillion through various operations

Economic Backdrop
India’s GDP growth slowed to an estimated 6.5% in fiscal 2025 from 9.2% in the previous year. However, improved liquidity conditions and policy support are expected to boost credit demand.

Future Growth Outlook

Divergent Performance Expectations – The report identifies a significant divergence in prospects between public and private sector banks:

Private Sector Banks are positioned for stronger growth:

HDFC Bank’s net income expected to grow 9.5% to ₹737.20 billion in fiscal 2026
Better positioned to capture growing retail demand
More efficient cost structures and capital positions

Public Sector Banks face headwinds:

SBI’s net income projected to decline 3.1% to ₹687.20 billion in fiscal 2026
Higher deposit costs due to competitive pricing pressures
Reduced benefit from asset recovery compared to previous years

Key Growth Drivers and Challenges

Positive Factors:

Improved system liquidity turning from deficit to surplus
Potential reduction in deposit costs
Supportive monetary policy environment
Recovery in credit demand expected

Risk Factors:

Public banks paying higher deposit rates, pressuring margins
Normalized credit costs as exceptional recoveries diminish
Private banks’ competitive advantage in retail banking

Reading-2 | “FinMin for Creation of Two Globally Competitive Banks as Part of Viksit Bharat Vision”

This Economic Times report covers India’s ambitious plan to develop two globally competitive banks as part of the “Viksit Bharat 2047” vision to become a developed nation, discussed during the PSB Manthan 2025 conference organized by the Department of Financial Services.

Current Global Standing

Present Position – India’s banking sector currently has limited global presence:

State Bank of India ranks 43rd globally in terms of assets
HDFC Bank is positioned at 73rd place, making it the second Indian bank in the global top 100
The goal is to achieve two banks in the global top 20 by assets

Strategic Vision and Approach

Organic Growth Strategy
The Finance Ministry emphasized achieving global competitiveness organically rather than through consolidation. When asked about potential public sector bank mergers, officials confirmed that consolidation was not discussed during the conference.

Key Strategic Elements:

Scale and size expansion as part of the Viksit Bharat journey
Enhanced board autonomy for improved commercial decision-making
Diversification into other banking segments for global relevance
Focus on operational efficiency and service excellence

Record Financial Performance Context

Unprecedented Public Sector Bank Profits – The strategic discussions occurred against the backdrop of exceptional financial performance:

Public sector banks’ cumulative profit reached a record ₹1.78 lakh crore in fiscal 2025
This represents a 26% growth over the previous year (₹1.41 lakh crore in fiscal 2024)
Absolute profit increase of ₹37,100 crore year-on-year

Individual Bank Performance:

SBI contributed over 40% of total PSB profits with net profit of ₹70,901 crore (16% growth)
Punjab National Bank achieved highest growth rate of 102% with profits of ₹16,630 crore
Punjab & Sind Bank recorded 71% growth to ₹1,016 crore

Implementation Framework

PSB Manthan 2025 Conference Structure – The two-day conference was chaired by Department of Financial Services Secretary M Nagaraju, with participation from:

Senior ministry officials and public sector bank executives
Chief Economic Adviser V Anantha Nageswaran
RBI Deputy Governor Swaminathan J
Other key financial sector leaders

Focus Areas for Development:

Asset quality improvement (maintaining low NPA ratios)
Information technology and cyber-security enhancement
Customer service and grievance handling improvements
Operational diversification for global competitiveness

Historical Context and Reform Trajectory

Previous Reform Initiatives – The current initiative builds on earlier reforms:

2017 PSB Manthan: Launched Enhanced Access & Service Excellence (EASE) reforms
2022 PSB Manthan: Advanced EASE reforms with six working groups focusing on customer service, digitization, HR incentives, corporate governance, and collaboration
Asset Quality Review (2015): Led to NPA peak in 2018 and subsequent improvement

Strategic Challenges and Opportunities

Key Implementation Challenges:

Achieving top 20 global ranking requires significant scale expansion
Maintaining asset quality while pursuing aggressive growth
Competing with established global banking giants
Balancing domestic priorities with global ambitions

Competitive Advantages:

Strong domestic market position and government backing
Record profitability providing capital for expansion
Improving operational efficiency and digital capabilities
Large customer base and extensive branch networks

Implications for Indian Banking Sector

Domestic Impact: The initiative signals India’s commitment to developing world-class financial institutions capable of supporting the country’s economic ambitions and competing globally while maintaining strong domestic operations.

Global Significance: Success in creating globally competitive Indian banks would mark a significant shift in the international banking landscape, potentially positioning India as a major financial services hub and supporting its broader economic development goals under the Viksit Bharat 2047 vision.

Both reports collectively illustrate India’s banking sector at a pivotal moment, with strong current performance providing the foundation for ambitious future growth plans, while highlighting the different trajectories expected for public versus private sector institutions in achieving these objectives.