In the last few years, the fortunes of India’s public sector banks (PSBs) have improved substantially. And this is reflected in the rising market capitalization of the banks with SBI alone crossing 4.45 lakh crore rupees while the share price of other banks has also risen substantially.
Minister of State for Finance Bhagwat K. Karad said in a written reply to the Rajya Sabha that PSBs are sufficiently capitalized. This means as the next credit cycle picks up in the post-Covid period, the businesses will have easy access to loans and funds. The government infused about ₹3 lakh crore between 2017-18 and 2021-22.
As reflected in their capital position as of December 31, 2021, PSBs are currently sufficiently capitalised,” he said. With regard to the General Insurance Corporation of India (GIC), Mr Karad said, no proposal to privatise GIC is under consideration of the government at present.
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The Indian banking sector has struggled in the last decade due to rising NPAs and a lack of capital to disburse loans. The Modi government has brought the Insolvency and Bankruptcy Code (IBC) to improve the condition of India’s PSBs and also infused capital to start a new credit cycle.
The Indian banking sector is arguably the least developed among all economies of its size. In the last Economic Survey, policymakers argued that India should have at least 6 banks at the top, while it currently has only one- SBI. Even countries like Finland, Austria and Denmark perform better than India. “India’s banks are disproportionately small, compared to the size of its economy. In 2019, when the Indian economy is the fifth-largest in the world, our highest ranked bank—State Bank of India— is a lowly 55th in the world and is the only bank to be ranked in the Global Top 100,” the Survey observed.
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India had the second-largest largest share of bad debts in the world with 9.6% gross NPA. Only Italy was ahead of us with 16.4 % of NPA, while other major countries like the US, China, and Japan have 1.1, 1.7, and 1.3 % of NPA respectively. Most of the NPAs in India are with public sector banks, and countries like America do not have large NPAs because their banks are private.
Private Banks generally do not develop bad debts because if their management lent to a client who is a potential defaulter, then the liability would be on their shoulders, not the government. In the case of public sector banks, the government keeps pumping money into them from the taxpayer’s pocket, and hence, these banks keep getting bailed out and revived rather than shutting down operations. Moreover, even if the credit of private sector banks becomes NPA, it is not the taxpayer who will be paying for it.
The Modi government has merged many PSBs and in the next few years, only 4 or 5 PSBs will be there in the country as said in the AtmaNirbhar document that set the path for the Indian economy.
Indian macroeconomic condition is arguably the best in the world and the country is all set for a decade of very high economic growth. This decade is going to witness huge capital spending and job creation by Indian corporates as well as the Indian government.
