Public sector banks in India received a much-needed boost after the Union Budget 2019 was announced. The Finance Minister Nirmala Sitharaman announced a capital infusion of Rs 70,000 crore is an effort to boost credit and the banks are hopeful they will be able to put the funds to some good use and liven up the economy.
The Finance Minister also announced that there was a recovery of over Rs 4 lakh crore of bad loans through the IBC in the last 4 years alone and this has been the highest in the last seven years. The public sector banks had been going through some tough times and a certain section of the population are always affected by it. She also announced there has been a smooth consolidation of the public sector banks under the Modi Government and she said that they deserved to be lauded for bringing a number of banks out of the prompt corrective action or PCA framework.
Other key developments
An announcement awaited the bank account holders as well and the Finance Minister said that now they could continue the cash deposited by others in their accounts. A few months back, in February, the interim Finance Minister, Mr. Piyush Goyal had opined that the government had expected the banks which were on RBI’s PCA list to soon give up. His budget, had, however, provided no room for the recapitalization of banks. Five banks were still on that list in late June 2019 and it meant that certain restrictions were levied on them regarding lending. Some of the big names in banking like PNB and Union Bank of India had already reported some major losses in the previous quarter.
On the other hand, loans that were worth Rs 17 lakh crores were identified as NPAs since 2016 and almost 80% of this loan amount was held by public sector banks. The Modi government had recapitalized the state-run lenders with about Rs 1.6 lakh crore in about 2019 or 2019 and this helped the five banks out of the PCA network. According to an official report, most banks nowadays are 75% strong and there are also a number of expected recoveries to happen through the IBC in the first quarter alone, and this will definitely add to the profits made by the banks.
The government had also announced previously that Rs 40,000 crores are to be invested in the public sector banks in 2019 and 2020 and they are sure to up their balance sheets. This will also help them to renew lending higher amounts. In turn, that would be used to aid the credit growth and they will also help the weaker banks to follow the regulatory norms and stick to them. This year’s budget did not have something very new or groundbreaking but many are lauding that the effort to rejuvenate the public sector banks has been a good one and will have a positive influence on the economy in the years to come.