ARJAVA MEDIA
Public sector banks are now more efficient and stronger with lower NPA and better capital adequacy ratios. The talks of PSBs’ weakness hold no sense.
The fraudulent loan restructuring left a huge blow on the commercial banks’ asset qualities between 2005 and 2014. The restructuring policy of the UPA regime covered up the volume of defaults and defaulters celebrated their time with bigger loans at the cost of the bank’s financial strength. The Reserve Bank of India announced the Asset Quality Review (AQR) in 2015 after the Modi government came to power, which saw NPA cats jumping out of sacks.
The AQR aimed to address the issue of stress in the banking system. After the withdrawal of the special treatment of restructured loans, stressed accounts were reclassified as Non-Performing Assets (NPAs). The expected losses on stressed loans not provided for earlier as a result of the special treatment were provided for. The action led to higher NPAs that peaked in 2018.
Since 2015, the Government implemented a comprehensive 4Rs with a strategy of Recognising NPAs transparently, Resolution and Recovery, Recapitalising PSBs, and Reforms in the financial system to address the challenges faced by PSBs. As a result of the Government’s overarching policy reforms, the financial health and robustness of the banking sector including of PSBs, has improved significantly. The improvement in PSBs’ asset quality is reflected in the gross NPA ratio declining to 3.12% at the end of September 24 from 4 a peak of 14.58% in March 2018. The increased profitability led to an improvement in Capital adequacy to reach 15.43% at the end of September 2024
During FY2023-24, PSBs recorded the highest ever aggregate net profit of ₹1.41 trillion against net profit of ₹1.05 trillion in FY2022-23 and recorded ₹0.86 trillion in the first half of FY2024-25. In the last three years, PSBs paid a total dividend of ₹61,964 crore. PSBs continue to expand their reach to every nook and corner of the country to deepen Financial Inclusion. Their capital base has strengthened and their asset quality has improved.
