India’s public sector banks closed FY2025-26 with their strongest financial performance on record, posting an aggregate net profit of ₹1.98 lakh crore, up 11.1% year-on-year, according to data released by the Ministry of Finance on Tuesday.
It marks the fourth consecutive year that state-owned lenders have reported a combined profit, a turnaround that was hard to imagine a decade ago when bad loans threatened the stability of the entire sector.
Business crosses ₹283 lakh crore
Total business of public sector banks reached ₹283.3 lakh crore as on March 31, 2026, growing 12.8% over the previous year. Aggregate deposits rose 10.6% year-on-year to ₹156.3 lakh crore, while gross advances grew 15.7% to ₹127 lakh crore. Credit expansion was broad-based, with retail, agriculture, and MSME advances growing 18.1%, 15.5%, and 18.2% respectively, reflecting the banks’ deepening reach into the productive economy.
NPAs at historic lows
The headline number that will draw the most attention is the near-elimination of stressed assets. The gross NPA ratio fell to 1.93% and the net NPA ratio to 0.39% as of March 31, 2026, the lowest levels recorded historically. Every public sector bank maintained a provisioning coverage ratio above 90%, signalling conservative risk management now deeply embedded across the system. The slippage ratio dropped to 0.7%, and total recoveries, including from written-off accounts, stood at ₹86,971 crore.
The contrast with where these banks stood not long ago is stark. At their worst, gross NPAs had ballooned past 14%, dragging down profitability and forcing the government into repeated recapitalisation rounds. The clean-up since then, driven by tighter underwriting, resolution through the Insolvency and Bankruptcy Code, and stronger board-level governance, has fundamentally changed the risk profile of the sector.
Capital buffers remain solid
The aggregate Capital to Risk-weighted Assets Ratio improved to 16.6%, well above the regulatory floor of 11.5%, supported by internal accruals and capital raising of ₹50,551 crore during the year.  Operating profit for the year reached ₹3.21 lakh crore. The cost-to-income ratio improved to 49.67%, reflecting better cost discipline and gains from technology adoption.
What it signals
The numbers arrive at a moment when credit demand in India remains robust, and the government is leaning on state-owned banks to fund infrastructure and support small businesses. A well-capitalised, low-NPA banking system gives policymakers more room to push lending without worrying about a repeat of the bad-loan crisis. For the banks themselves, four years of uninterrupted profitability has rebuilt retained earnings and the capacity to absorb future shocks.
The Ministry of Finance framed the results as validation of reforms aimed at improving governance, technology adoption, and credit discipline, with public sector banks now described as institutionally equipped to support the Viksit Bharat vision through 2047.
