Executive Snapshot

India's scheduled commercial banks concluded financial year 2023–24 in a position of exceptional strength. Asset quality reached its best level in over a decade, with the sector-wide gross non-performing assets (GNPA) ratio falling to a twelve-year low of 2.8 per cent by the close of March 2024. Capital buffers remain robust at a capital adequacy ratio (CRAR) of 16.8 per cent — well in excess of the regulatory minimum of 11.5 per cent — whilst profitability indicators climbed to near-decadal highs, with return on assets (RoA) reaching 1.3 per cent and return on equity (RoE) at 13.8 per cent. These results underscore a structural transformation of the Indian banking system that has unfolded over six years of disciplined resolution, recapitalisation, and regulatory reform.

The sector's credit growth of 16.3 per cent year-on-year — powered by retail lending, SME expansion, and infrastructure financing — continues to outpace deposit mobilisation, pushing the credit-to-deposit ratio to elevated levels. The Reserve Bank of India (RBI), which held its benchmark repo rate steady at 6.50 per cent for the eighth consecutive meeting, has indicated that monetary conditions remain appropriately calibrated to sustain growth whilst anchoring inflation within its 2–6 per cent tolerance band. The landmark merger of HDFC Limited into HDFC Bank — the largest financial sector consolidation in Indian history — dominated the strategic narrative of FY2024, creating a lending colossus with total assets of nearly USD 484 billion and reshaping competitive dynamics across the mortgage and retail banking landscape.

Macroeconomic Environment

India's macroeconomic backdrop provided a powerful tailwind for banking sector performance across FY2024. Real GDP growth of 8.2 per cent for the fiscal year — driven by robust public investment in infrastructure, a broad-based manufacturing recovery, although private consumption growth was comparatively subdued — made India the fastest-growing major economy in the world. The fourth quarter of FY2024 (January–March 2024) delivered real GDP growth of 7.8 per cent, reflecting sustained momentum heading into the new financial year.

Consumer price inflation moderated to 4.83 per cent in April 2024, easing further to a twelve-month low of 4.75 per cent in May, remaining comfortably within the RBI's 2–6 per cent target band. However, food price inflation persisted at elevated levels, driven by supply-side constraints in vegetables and pulses; the Monetary Policy Committee voted 4–2 in June 2024 to keep the repo rate unchanged, with two members favouring a 25 basis point cut. The RBI maintained its repo rate at 6.50 per cent and held its policy stance at "withdrawal of accommodation" through the first half of calendar year 2024, emphasising its commitment to durable disinflation.

Strong public capital expenditure — budgeted at INR 10 lakh crore in the union budget for FY2024 — coincided with construction sector growth of 9.9 per cent. The World Bank projected India's economy to sustain average growth of 6.7 per cent a year over FY2025–FY2027, keeping the structural credit demand outlook positive for the banking sector.

Banking Sector Overview

India's banking system, comprising 12 public sector banks, 21 private sector banks, 44 foreign banks, and a broader universe of small finance banks, payments banks, and co-operative banks, closed FY2024 with its consolidated balance sheet expanding at a double-digit pace. Aggregate credit growth of 16.3 per cent year-on-year at end-March 2024 was broad-based, encompassing retail, MSME, corporate, and agriculture segments, though the pace of expansion moderated in the final quarter following the RBI's November 2023 risk weight adjustments on unsecured retail lending and NBFC exposure.

The defining structural event of FY2024 was the completion of HDFC Limited's merger into HDFC Bank in July 2023 — a transaction that added approximately INR 7 lakh crore in assets to the bank's balance sheet and transformed the competitive landscape for mortgage lending and retail banking. The merged entity, with total assets approximating INR 40 lakh crore, extended its lead over ICICI Bank as India's largest private sector bank. However, the structural expansion of HDFC Bank's balance sheet created elevated credit-to-deposit dynamics, with the bank's loan-to-deposit ratio peaking at approximately 110 per cent post-merger — well above system norms — prompting management to implement an active deposit mobilisation strategy over the medium term.

Deposit growth of approximately 13.5 per cent system-wide, whilst healthy in absolute terms, continued to lag credit expansion. The share of term deposits rose as banks offered competitive fixed rates, while the share of low-cost current account and savings account (CASA) deposits declined.

Key Performance Metrics

The following table presents aggregate sector-level performance indicators for India's scheduled commercial banks as at 31 March 2024, drawn from the RBI's Financial Stability Report (June 2024) and official bank disclosures.

Major Banks Performance

Four of India's largest banks — HDFC Bank, ICICI Bank, State Bank of India (SBI), and Axis Bank — delivered strong results for Q4 FY2024, each reporting higher year-on-year profits.

* HDFC Bank YoY comparison is against the pre-merger Q4 FY23 figure. † Axis Bank reported a net loss of INR 5,728 crore in Q4 FY23 due to one-time charges related to the Citibank India acquisition. FY24 full-year PAT: INR 24,861 crore (+160% YoY on a reported basis). Sources: Individual bank press releases, April–May 2024.

HDFC Bank: Integration Under Way

HDFC Bank's Q4 FY2024 numbers reflect the third full quarter following the July 2023 merger with HDFC Limited. Net interest income of INR 29,080 crore (up 24.5 per cent) and a net profit of INR 16,512 crore were reported for the quarter, with management focused on balance sheet normalisation after the merger. The bank's net interest margin of 3.44 per cent on total assets is lower than private sector peers, reflecting the structural dilution from HDFC Limited's mortgage assets (which were funded at higher costs than typical bank deposits). HDFC Bank's GNPA ratio was 1.24 per cent and NNPA 0.33 per cent, with capital adequacy of 18.8 per cent.

ICICI Bank: Risk-Calibrated Growth

ICICI Bank delivered another quarter of record profitability, with net profit of INR 10,708 crore, underpinned by 16.8 per cent loan growth and robust fee income. The bank's NIM compression to 4.40 per cent — from 4.90 per cent a year earlier — reflected sector-wide deposit cost pressure and the bank's stated focus on growing core operating profit in a risk-calibrated manner. The retail loan portfolio grew 19.4 per cent and personal loans surged 32.5 per cent. ICICI's CET1 ratio stood at 15.60 per cent.

State Bank of India: Public Sector Excellence

SBI's Q4 FY2024 net profit of INR 20,698 crore — and full-year profit of INR 61,077 crore (+21.6 per cent) — represent the highest-ever annual earnings for India's largest state-owned lender. The bank's FY2024 ROE was 20.32 per cent and ROA 1.04 per cent. NIM of 3.30 per cent ticked up sequentially (from 3.22 per cent in Q3). The GNPA ratio improved 54 basis points year-on-year to 2.24 per cent; the provision coverage ratio was 75.02 per cent. Deposit growth of 11.1 per cent, with CASA at 41.1 per cent.

Axis Bank: Earnings Recovery Confirmed

Axis Bank's Q4 FY2024 net profit of INR 7,130 crore represented a decisive return to profitability, erasing the Q4 FY23 loss of INR 5,728 crore which arose from one-time charges related to the Citibank India consumer business acquisition. Full-year PAT of INR 24,861 crore and consolidated ROE of 19.3 per cent were reported for FY2024. The bank's NIM of 4.06 per cent — up 5 basis points sequentially. Retail loans, at 60 per cent of total advances, grew 20 per cent year-on-year, with cards and payments fees rising 39 per cent.

Credit Quality and Risk

The GNPA ratio's decline to 2.8 per cent — from a crisis-era peak of 11.2 per cent in March 2018 — represents over six years of disciplined resolution work, enabled by the Insolvency and Bankruptcy Code (IBC), the RBI's Prudential Framework for Resolution of Stressed Assets, and recapitalisation support for public sector banks. The net NPA ratio of 0.6 per cent, at a record low, reflects higher provisioning.

Credit quality improvement has been broad-based. PSBs reduced their GNPA ratio from about 5.0 per cent in March 2023 to about 3.5 per cent in March 2024 — still above private sector peers but reflecting substantial improvement from double-digit levels. Private banks, exemplified by HDFC Bank (1.24 per cent), Axis Bank (1.43 per cent), and ICICI Bank (2.16 per cent), report GNPA ratios well below the system average. The slippage ratio — the flow of new NPAs as a share of standard advances — declined across bank groups.

The RBI's June 2024 Financial Stability Report macro stress tests projected that, under a severe stress scenario, the aggregate CRAR of 46 major banks would fall from 16.7 per cent to 13.0 per cent by March 2025 — still 150 basis points above the 11.5 per cent minimum including the capital conservation buffer. Key residual risk areas identified by the RBI include: (1) concentration in the unsecured personal loan and credit card segment, which prompted the November 2023 risk weight action; and (2) the widening gap between credit and deposit growth.

Credit growth by segment during FY2024 reflected the evolving composition of demand. Retail lending — encompassing home loans, personal loans, credit cards, vehicle finance, and consumer durables — grew by 17.7 per cent in FY2024, behind services (20.2 per cent) and agriculture (20.1 per cent). Credit to industry grew 8.5 per cent, up from 5.6 per cent a year earlier. Agricultural and allied sector credit grew steadily within government-mandated priority sector lending (PSL) frameworks.

Regulatory Developments

The RBI's regulatory posture in FY2024 combined macroprudential caution with targeted structural interventions. The most consequential regulatory action of the period was the November 2023 increase in risk weights on three categories of bank lending: (1) consumer credit, including personal loans, raised from 100 to 125 per cent; (2) credit card receivables, raised to 150 per cent; and (3) bank lending to NBFCs, raised by 25 percentage points where the existing risk weight was below 100 per cent. This pre-emptive measure was designed to moderate the pace of unsecured retail credit, which had been growing far faster than overall bank credit, and to curb banks' growing interconnection with NBFC balance sheets. The impact was visible in Q4 FY2024 data, as personal loan and credit card growth rates decelerated from their earlier peaks.

On the digital lending front, the RBI continued to enforce its 2022 digital lending guidelines, requiring regulated entities to ensure all loan disbursals and repayments flow through bank accounts rather than third-party pools. The FSR June 2024 specifically flagged high delinquency in small-ticket personal loans of below INR 50,000, a segment in which NBFC-fintech lenders hold the largest share.

The RBI's Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices, effective 1 April 2024, placed explicit responsibility on bank boards for oversight of technology strategy, cyber risk management, and third-party vendor risk.

Digital Banking

India's digital payments ecosystem continued its rapid expansion in FY2024, with the Unified Payments Interface (UPI) maintaining its position as the world's most widely used real-time payments rail by volume. Monthly UPI transaction volumes reached approximately 13.9 billion in June 2024, up from 8.0 billion in January 2023, reflecting year-on-year volume growth of around 50 per cent. Over the first half of calendar year 2024 alone, UPI processed 78.97 billion transactions valued at INR 116.63 trillion — an increase of 52 per cent in volume and 40 per cent in value versus the first half of 2023. With more than 600 banks live on UPI and UPI accounting for roughly four-fifths of all digital payment volumes in India by transaction count, the platform has become the definitive infrastructure layer of Indian retail finance.

TGB Outlook

The Indian banking sector enters the new financial year from a position of exceptional balance sheet health. The multi-year asset quality rehabilitation is structurally embedded: the RBI's June 2024 macro stress tests showed banks meeting minimum capital requirements in March 2025 even under the severe scenario. Profitability, at near-decadal highs, supports internal capital generation that reduces the dependence of private sector banks on equity markets and of PSBs on government recapitalisation.

The key medium-term risk cluster centres on the deposit-credit growth gap. Credit expanding at 16 per cent whilst deposits grow at 13.5 per cent is arithmetically unsustainable without either deposit pricing rising further (thereby compressing NIMs) or credit growth moderating. The RBI has signalled awareness of this tension, and the November 2023 risk weight action serves as a template for additional macroprudential interventions should unsecured retail credit re-accelerate. Banks that manage their liability franchises most effectively — particularly in growing granular retail deposits and maintaining CASA ratios — are best positioned to sustain margin quality through the cycle.

On monetary policy, TGB assesses a first RBI rate cut in the second half of FY2025 (October 2024 to March 2025) as the base case, contingent on durable disinflation and global monetary easing dynamics led by the US Federal Reserve. An earlier or deeper easing cycle could accelerate credit demand and partially relieve deposit cost pressures; conversely, prolonged monetary tightness in advanced economies could keep the RBI on hold for longer, sustaining the current environment of stable but slightly compressed NIMs. The HDFC Bank integration, whilst temporarily disruptive to sector-level credit growth statistics, is expected to enhance long-term competitive intensity in mortgage and retail banking, ultimately benefiting borrowers through greater product availability and pricing competition.

India's banking sector remains one of the most compelling long-term structural stories in emerging market banking. A combination of deep financial underpenetration — credit-to-GDP below 60 per cent — a youthful and growing population, accelerating digital infrastructure, and a macro-stable policy environment underpins a sustained credit growth runway. With the worst of the NPA cycle firmly in the past, capital adequacy comfortably above regulatory minima, and profitability improving for a sixth consecutive year, India's banks are well-positioned to serve as the principal intermediaries of the country's ambition to double its economy to USD 7 trillion by the end of the decade. The central challenge for bank management teams and supervisors alike is to sustain this momentum without sowing the seeds of the next credit cycle's vulnerabilities — a balance the RBI, with its increasingly sophisticated macroprudential toolkit, appears well-equipped to calibrate.

This report is produced by The Global Banker Research Desk and is intended for institutional and professional investors. All data sourced from public disclosures: Reserve Bank of India Financial Stability Report (June 2024); individual bank Q4 FY2024 press releases; MOSPI GDP data; NPCI monthly UPI statistics; RBI sectoral deployment of bank credit (March 2024); World Bank Global Economic Prospects (June 2024). Reference period: January–March 2024 (Q4 FY2024). Published: 3 July 2024.