SBI research finds 3x increase in net profit of banks under Modi govt

SBI research finds 3x increase in net profit of banks under Modi govt


The Indian banking sector has witnessed tremendous transformation between Financial Year 2013-2014 and Financial Year 2022-2023, revealed a research report by the State Bank of India (SBI) on Tuesday (August 15).

Indian Banks, resurgent, strong, capital-healthy, tech-oriented and adopting best global practices look confident and ready to front-lead the aspirations of this new India and the aspiring Middle Indian class…” the report read.

Between FY14 and FY23, the banking credit has increased from ₹60 trillion to ₹138 trillion, thereby registering a credit growth of over 2.3 times. Around the same period, bank deposits surged 2.4 times from ₹77 trillion to ₹187 trillion.

Screengrab of the key banking indicators from FY14-FY23, chart via SBI Research/ RBI

Moreover, the net profit of banks tripled from ₹809 trillion to 2,480 trillion between Financial Year 2013-2014 and Financial Year 2022-2023. According to SBI research report, it was made possible through the process of ‘consolidation’.

There are 9588 banks/ FIs in India in 2023 as opposed to 12,175 in 2014. The number of Public Sector Banks (PSBs) have also been reduced to 12 from 27 in the past 9 years.

“Consolidation leads to bigger and stronger Banks/FIs…consolidation leads to more profitable non-Bank players in synergy with Banks,” the report added. The Modi government has realised the ambition of financial inclusion through the opening of 49 crore Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.

SBI report reveals ascent of Indian middle class

 The analysis of the Income Tax returns filed in the Financial Year 2022-2023 revealed the ascent of the Indian middle class, reported SBI Research.

The State Bank of India estimated that there will be 48.2 crore ITR filers in FY 2047 as compared to 7 crores in FY 2022-2023. By then, 85.3% of ITR filers will also be eligible to pay taxes.

About 25% of them are also expected to leave the lower-income strata by the Financial year 2046-2047. The per capita income is also expected to rise from ₹2 lakhs in this Financial year to ₹14.9 lakhs by FY 2047.

Projected weighted mean income as per ITR records, graph via SBI Research

This can largely be attributed to the Modi government’s efforts in formalising 7 crore Micro, Small and Medium Enterprises (MSMEs) and empowering the middle class.

Moreover, the weighted mean income of ₹4.4 lakhs in the Assessment Year 2013-2014 has increased to ₹13 lakhs in Assessment Year 2023-2024 and is projected to increase to ₹49.7 lakhs (~ 50 lakhs) in Assessment Year 2046-2047.

The stark increase in weighted mean income, as evident from the ITR filed between Assessment Years 2011-2012 and 2022-2023, explains the transition of filers from the lower-income group to the upper-income group.

When the Economist praises the Modi govt for reviving the banking sector

In May this year, the British weekly newspaper The Economist praised the Modi government for reviving the banking sector in India and turning around its profitability

In an article titled ‘India’s once-troubled banks are generating huge profits’, it said, “…Indian banks’ recent annual earnings have been spectacular…India’s state-owned banks generate, on average, over 11% and private banks almost 15%. In a development few, if any, predicted, Indian banks are among the world’s most profitable.”

The Economist noted that the bankruptcy reforms [pdf] introduced by the Narendra Modi government in 2016 helped in the rapid liquidation of failing companies and also forced ‘delinquent businesses to pay up.’

The British newspaper pointed out that the merger of 27 nationalised banks into just 12 and capital infusion in the struggling banking sector paved the way for their revival.

“In 2019, as part of the seemingly endless mop-up of Indira Gandhi’s banking nationalisation half a century ago, the government announced that 27 state-owned banks would become 12, with many branches closing,” it said.

“According to Boston Consulting Group, state banks have also written off $91bn in bad loans in the past five years—just a little less than their combined worth. Many survived thanks to an infusion of 2.6trn rupees ($31bn) from the state, in return for shares, over the past three years. Such infusions have more recently been curtailed, as banks have learned how to stand on their own feet,” the article added.

The Economist emphasised that these measures introduced by the Modi government helped in the overall acceleration of Indian economic growth. “As the system has become healthier, banks have lent more. Annual credit growth slowed to 3% in 2017. It is now up to 18%. Interest rates have risen less sharply than in America, helping limit stress,” it said.


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