Rising profits at India's state-run banks could produce nearly $2 billion in dividends for the government in the next fiscal year starting in April, a solid jump from this year, a top finance ministry official said.

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Since taking charge in 2014, Prime Minister Narendra Modi has taken steps to strengthen state banks including merging weaker banks with stronger ones and a bankruptcy law to recover money from defaulters, while channeling more than 3.3 trillion rupees ($39.7 billion) to recapitalise stressed banks.

The government expects to receive at least 150 billion rupees ($1.8 billion) in dividends from state banks in 2024/25, up 8.7% or more from an expected 138 billion rupees in the current fiscal year ending in March, Vivek Joshi, India's financial services secretary, said late on Monday.

"This is a conservative estimate (about dividends)," Joshi, told Reuters in a post-budget interview, noting net profits of state banks, including India's largest bank, State Bank of India (SBI.NS), opens new tab, were set to cross 1 trillion rupees ($12 billion) in the current fiscal year, fuelled by strong credit demand.

The 12 state-run banks have reported net profits totalling 980 billion rupees in three quarters ending December, said Joshi, one of the top officials at the finance ministry.

The asset quality of state banks also has improved over the years, with gross non-performing assets (GNPAs) declining to 3.2% in September 2023, from 9.6% in the March 2017 quarter, central bank data showed.

Finance Minister Nirmala Sitharaman, while presenting the interim budget last week, estimated the government would receive 1.02 trillion rupees ($12.3 billion) in dividends from the Reserve Bank of India, state banks and financial institutions in 2024/25 as against 1.04 trillion in current financial year.

Every year, a large chunk of the dividends comes from the country's central bank. The Reserve Bank of India (RBI) transferred 874.16 billion rupees in dividends to the government in the current fiscal year.

State banks have raised 430 billion rupees through markets in the current fiscal year so far, compared to 450 billion rupees in all of the last fiscal year, Joshi said, indicating banks were no more dependent on budgetary support.

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