Journey of Public Sector Banks Since 2014

This year on 19th July 2023, 54 years will be completed of Bank Nationalization, as on 19th July 1969, 14 major Private sector Banks were nationalized by the Government. Economy in general and Banking in particular has seen many challenges since 1969. The first one was the balance of payments crisis in India in 1991 which was caused by the country's foreign exchange reserves falling to a level where the Government could no longer service its external debt.

 

 

 

This paved the way for Liberalisation, Privatisation and Globalisation (LPG) of our economy which changed the overall concept of Banking in India and greatly reformed PSBs. Then in 2007-08 came the subprime mortgage crisis, causing severe contraction of liquidity in global financial markets that originated in the United States as a result of the collapse of the U.S. housing market.

 

However analysts believe that it was the economic policies of the government during 2004 -2014 which made a long term adverse impact on the health of PSBs. It is alleged that political interference led to gigantic jump in corporate credit without assessing economic feasibility (Often called as Telephonic Banking) and subsequent ever greening of these loans which resulted into mounting Non Performing Assets (NPAs) afterwards, threatening the very existence of Indian Banks in general and PSBs in particular. In the 2014, NDA government came to power and opposition started making hue and cry by leveling allegations that NDA will privatize the PSBs.

The chorus became much louder again after when Government announced merger of 10 PSBs into 4 which came into effect on 1st April 2020. The allegation was made that Government is offering these PSBs on platter to Private entities. Surprisingly Congress the principle opposition party which opposed the merger had itself said in its election manifesto of 2019, that it will amalgamate two or more PSBs so that there will be only six to eight PSBs with a national presence. (Page no.23 para no.11.1- Congress promises a comprehensive review of the concept, role and functions of Public Sector Banks (PSBs) in order to make PSBs robust and competitive with healthy balance sheets.) In this backdrop it will be interesting to see the journey of PSBs since 2014.

 

After coming to power In 2014, NDA government faced the challenge of Strengthening of PSBs. Lot of bold initiatives were taken and the process is still going on. Contrary to allegations of opposition, NDA Government has strengthened them by implementing 4R strategy instead of Privatising PSBs. The 4R strategy refers to Recognising the problem of non-performing assets, Recapitalising the banks, Resolving their problems, and Reforming as a response to the situation prevailing in 2014. The 4R strategy led to dramatic improvements of PSBs on various parameters of profitability, capital adequacy, NPA reduction, checks on the occurrence of fraud and mobilization of funds from the market. The net profit of PSBs has almost tripled to Rs 1.04 lakh crore in FY 23 from Rs 36,270 crore in FY 2014 due these initiatives. The government undertook a massive recapitalization of PSBs. The government has infused Rs 3,10,997 crore to recapitalize banks from 2016-17 to 2020-21, out of which Rs 34,997 crore were sourced through budgetary allocation and Rs 2,76,000 crore through issuance of recapitalization bonds.

 

 

It will be injustice to say that previous governments did not explore the strengths of PSBs for socio economic development but it is accepted now that the serious efforts are being made since 2014 to strengthen PSBs by empowering them with latest technologies, reducing political interference and professionalizing their management and providing them adequate capital so that PSBs can work as vehicles of socio economic development so that they can play a vital role to achieve the target 5 trillion dollar economy. Many socioeconomic achievements can be attributed to PSBs.

The recent example is of various initiatives of new government to expand the reach of financial inclusion. The zeal with which PSBs have implemented these schemes deserves great appreciation and recognition from the society. The latest figures for the most popular scheme Pradhan Mantri Jan - Dhan Yojana (PMJDY) shows the reach and utility of the PSBs for the Indian Economy. 1,80,96,130 accounts were opened by PSBs under financial inclusion during a week (from 23rd to 29th August 2014) which was recorded in Guinness World Records.

 

As all the Regional Rural Banks (RRBs) have been sponsored by PSBs, their contribution is clubbed with PSBs. 27.42 Crore families/people who were hitherto deprived of benefits of formal economy have been brought into the Banking , out of which 26.67 Crore accounts (97.26%) are opened by PSBs & their sponsored RRBs.

Another major contribution is role of PSBs in making Direct Benefit Transfer (DBT) a grand success and making it a tool of socio economic development by creating seamless mechanism to transfer benefit to genuine beneficiaries without any pilferation. This has reduced the corruption and created a new class of “Beneficiaries” commonly called as “Labharthis”. To understand the significance of the DBT one has to refer the statement made in 1980 by of late Shri Rajiv Gandhi the then the Prime Minister of India, who had said that for every rupee targeted towards welfare and poverty alleviation only a fraction, 15 paise, reached the intended beneficiary. DBT was launched on 1st January 2013. But in absence of adequate infrastructure the scheme could not achieve desired results.

 

However with the launch of Nationwide financial literacy and financial inclusion schemes such as PM's Jan Dhan Yojana launched in August 2014 and the JAM Yojana , that is the bank-mobile-identification trinity, the scheme was tremendously successful. Now the funds of 312 Schemes from 53 Central Ministries transferred Rs 7,16,396 Cr in Financial year 2022-23 with Cumulative gain up to March 2022 of Rs. 2,73,093.80. The role played by PSBs for successful implementation of the scheme is matter of pride. If one go through the Government Share Holding in PSBs, it will provide adequate proof of the sincerity of the government to maintain the status of Public Sector Banks as Government owned banks.

 

S.No	Name of the Bank	Government Share Holding (as of end-March 2022)
1	State Bank of India	57.59%
2	Punjab and Sind Bank	98.25%
3	Indian Overseas bank	96.38%
4	UCO Bank	95.39%
5	Central Bank of India	93.08%
6	Bank of Maharashtra	90.90%
7	Union Bank of India	83.49%
8	Bank of India	81.41%
9	Indian Bank	79.86%
10	Punjab National Bank	73.15%
11	Bank of Baroda	63.97%
12	Canara Bank	62.93%

 

 

The above initiatives of NDA government to transform PSBs as vehicle for socio economic development demonstrate its resolve to strengthen them and not otherwise. It will not be correct to say that all is well with PSBs but it must be appreciated that Government is addressing those issues with commitment. On this 54th day of Bank Nationalisation, Let us hope that PSBs will become stronger and vibrant.