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Explainer: How did public sector banks transform themselves from losses to profits in 10 years?

Sagar Patel

By Sagar Patel

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Changing circumstances of the banking sector in the country.

Prime Minister Narendra Modi, while expressing his appreciation for the President’s address in the first session of the 18th Lok Sabha, mentioned the improvement in the conditions of public sector banks in the country. Not only this, he narrated how the problem of non-performing loans was resolved and how public sector banks in India have become profitable. The story of this transformation of banks is also quite interesting.

The Indian banking system is regulated by the Reserve Bank of India (RBI). When Prime Minister Narendra Modi first came to power in 2014, NPAs had become a major problem in the banking system. A major reason for this was the large-scale distribution of unsecured loans to support growth after the 2008 economic downturn. In 2014, the RBI also started to take notice of the NPA problem.

As soon as Prime Minister Narendra Modi came to power, work began rapidly to improve the situation of banks. The then RBI Governor Raghuram Rajan also created a system to deal with NPAs and made it mandatory for banks to show NPAs separately in the balance sheet. Not only this, a norm was also made for banks to make separate provisions for non-performing loans (NPAs) in the balance sheet. Due to this, the balance sheets of banks started getting healthy.

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The transformation of banks is taking place.

After this, the government made a major reform in the banking sector. The government worked to create four large banks by merging about 10 government banks. Here too, banks with very high non-performing loans were merged. The biggest benefit of this was that the capital base of the banks increased and their efficiency improved when they merged with the large banks. Due to this, improvements began to be seen in the banking sector and its transformation began.

The Modi government did not stop here. The government pumped capital into public sector banks to meet Basil-3 norms. At the same time, it remained vigilant when IDBI Bank and Yes Bank were in trouble. On the other hand, the Modi government also worked to strengthen the RBI to improve banking regulation, from cooperative banks to NBFCs.

Recovery of Rs 10 lakh crore in 10 years

During this period, the Modi government brought about a major reform by enacting the Bankruptcy Act. With the help of this Act, banks got a lot of help in recovering their bad loans. Banks got the power to approach the NCLT against companies that went missing after receiving bad loans from banks or were unable to repay them. Banks also got the power to recover loans by auctioning their properties.

Recently, Finance Minister Nirmala Sitharaman had said in a programme that during the last 10 years of the Modi government, bad loans worth Rs 10 lakh crore have been recovered overall from banks. The Enforcement Directorate (ED) investigated over 1,100 cases of bank fraud, which helped in seizing assets worth Rs 64,920 crore. While government banks also recovered Rs 15,183 crore.

These banks made profits

With banks’ balance sheets becoming cleaner and the government’s lending system becoming more transparent, the country’s economic growth has helped banks turn a profit. Finance Minister Nirmala Sitharaman recently said in a statement that the total profit of all public sector banks has touched Rs 3 lakh crore.

If we talk about banks making profits, the financial results of the country’s largest government bank SBI i.e. State Bank of India bear witness to it. Before the impact of the Modi government’s banking reforms became visible i.e. before the year 2019, SBI was making losses of around Rs 14,000 crore. But in 2023-24, it has become a bank making profits of Rs 61,076 crore.

A similar situation is also observed in Punjab National Bank i.e. PNB. In the year 2019, the bank made a loss of Rs 9,975.49 crore. In the fiscal year 2023-24, it made a profit of Rs 8,244.62 crore.

Sagar Patel

Sagar Patel

I am Sagar Patel, specializing in business news reporting. With a keen focus on economic trends, market analysis, and corporate developments,

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