Public sector banks have made a spectacular comeback in the Indian banking sector. Public Sector Banks (PSBs), which were once struggling with rising bad loans and weak balance sheets, have now significantly strengthened their financial position. In the financial year 2025-26, public sector banks not only recorded record profits but also reduced bad loans (NPAs) to their lowest level in decades.
According to the Finance Ministry, the total net profit of public sector banks has increased to a record ₹1.98 lakh crore in FY26. At the same time, Gross Non-Performing Assets (GNPA) has come down to only 1.9 percent, which is the best level till date.
Picture of government banks changed in four years
The Finance Ministry said that in the last few years, there has been a big improvement in the financial condition of public sector banks. While the total profit of PSBs was just ₹0.67 lakh crore in FY 2021-22, it increased almost three times in FY26 and reached a record level of ₹1.98 lakh crore. During this period, there has also been a significant decline in bad loans of banks. The GNPA of public sector banks was around 7.3 percent in FY22, which continuously decreased to only 1.9 percent in FY26.
Tremendous increase in banking business also
The total business of public sector banks has also increased rapidly. According to the Finance Ministry, the total business of PSBs crossed ₹283 lakh crore in FY26. Deposits in banks have also increased continuously. The total deposits with public sector banks were ₹107.2 lakh crore in FY22, which increased to ₹156.3 lakh crore in FY26. At the same time, the amount of loans and advances also increased from ₹74.3 lakh crore to ₹127 lakh crore during this period.
Rapid growth in MSME and retail loans
Government banks have also shown speed in giving loans to small businessmen and general customers. According to the Finance Ministry, there was a growth of 19.6 percent in MSME loans and 19.8 percent growth in retail loans in FY26. This has increased the availability of loans for small businesses, home buyers and personal needs.
Capital base of banks strengthened
The financial strength of public sector banks can also be gauged from their capital ratio. In the last five years, the capital to risk-weighted assets ratio (CRAR) of banks has increased from 14.6 percent to 16.6 percent.
Government launched ECLGS 5.0 scheme
The Finance Ministry said that in view of the financial difficulties faced by businessmen due to the West Asia crisis, the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) was launched in May 2026. Under this scheme, 100 percent guarantee coverage will be given to MSMEs and 90 percent to non-MSME and scheduled passenger airlines. The limit of total credit support under this scheme has been kept at ₹2.55 lakh crore.
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