In the longer term, the report notes, half a century after nationalization in 2019, public sector banks (PSBs) accounted for Rs 7.4 lakh crore of gross NPAs (Non-Performing Assets) in the Indian banking system, or 80 per cent of NPAs. . , In the same year, PSBs reported a collective loss of Rs 66,100 crore as opposed to profit of Rs 42,100 crore of other scheduled commercial banks.
according to a please respond From the government in Rajya Sabha in 2021, the NPA of PSBs increased to Rs 5.40 lakh crore in 2021 from Rs 2.24 lakh crore in 2014.
In June this year, the RBI in its Financial Stability Report also flagged the poor financial health of PSBs. “In the severe stress scenario, however, the GNPA (gross non-performing assets) ratio of PSBs may increase from 7.6 per cent in March 2022 to 10.5 per cent a year later, while it will increase from 3.7 per cent to 5.7 per cent. For PVBs (Private Sector Banks),” the report said.
GNPA refers to the sum total of all unpaid loans given by banks that have defaulted on their principal or interest payments. The higher the GNPA, the more worrying will be the asset quality of the bank.
The RBI report also said that if the economy undergoes “severe stress” due to any crisis or developments, the GNPA ratio in the case of banks is likely to deteriorate further.
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Modi government’s privatization push
in their policy paper ‘Privatization of Public Sector Banks in India: Why, How and How Far?’, Arvind Panagariya, former Vice-Chairman of NITI Aayog and Poonam Gupta, Director General, National Council of Applied Economic Research, said that, “Since 2014-15, almost the entire growth of the banking sector is due to private banks and the largest PSB, SBI”.
Between 2010-11 and 2020-21, the government invested $65.5 billion (Rs 5.2 lakh crore) in PSBs to fight the NPA crisis, but the situation was still worse compared to the private sector.
The authors note that PSBs (including SBI) accounted for 88.5 per cent of the total banking assets in 1991-92, and private banks started with only 4.2 per cent. This number has changed drastically in three decades. By 2020-21, the share of PSBs fell to 59.8 per cent and that of private banks to 32.8 per cent.
“The next question we face is the pace of privatization. Our view here is that the government should move as fast as possible politically. This is because private banks are now clearly outperforming PSBs. It is highly unlikely that this trend will reverse in the coming years.” the report saidadding that As long as the government rests on the public sector banks that it plans to eventually privatize, more taxpayer money will be spent on more rounds of recapitalisation.
Modi government is moving towards privatization and merger in the banking sector. In 2016The then Finance Minister Arun Jaitley had proposed merger of five associate banks of SBI with the banking giant. In 2019, state-owned Bank of Baroda became India’s third largest lender after the merger of Vijaya Bank and Dena Bank.
Jaitley’s successor Nirmala Sitharaman took the merger policy a step further. In one of the biggest reforms of the Modi government, Sitharaman announced in August 2019 mega merger 10 in four units of public sector banks. He also announced an investment of over Rs 55,000 crore in PSBs.
While the government announced the privatization of two public sector banks in the Union Budget for 2021-22, sitharaman Said in December that the decision was pending. Is there now reports That the government is planning to initiate the next round of PSB mergers with the aim of creating four-five large banks of the scale of SBI.