BANKING BOOM

FOCUS ECONOMY

- Dhurjati Mukherjee

The banking sector has been in good health. Most banks are earning high profits and attracting investors in the capital sector. This is reinforced by the fact that the Reserve Bank of India's board approved a record surplus transfer to the central government of Rs 2.68 lakh crore for the accounting year 2024-25. This is higher than Rs 2.1 lakh crore that the central bank paid as dividend to the Centre in 2023-24 and marginally higher than Rs 2.56 lakh crore dividend receipt that the government has been expecting from the RBI and public sector banks.

The higher-than-expected pay-out will bring down rates with analysts expecting the yield on government bonds to come down further. According to Aditi Nayar, Chief Economist at ICRA, the RBI's dividend exceeds Budget assumptions by around Rs 40,000-50,000 crore or 11-14 basis points of GDP. The government will obviously feel financially benefited and would be in a position to manage additional spending.

The banking sector's Q4 consolidated net profit crossed Rs 1 lakh crore for the first time. Public and private sector banks together posted a net profit of Rs 100,178 crore in Q4 of financial year F25, up 9 percent from Rs 91,829 crore in the year-ago quarter. This growth came despite a squeeze in net interest margins as lending rates fell, following RBI's February rate cut while deposit costs stayed high.