Public Sector Banks (PSBs) reforms

7-Jan-2022: Bankers say PSBs adequately capitalised and prepared for any stress scenarios in future

Union Minister of Finance & Corporate Affairs Smt. Nirmala Sitharaman reviewed the performance of Public Sector Banks (PSBs) with their Chairmen & Managing Directors (CMDs/MDs) via virtual mode in New Delhi today. The review meeting was also attended by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad and Secretary, Department of Financial Services (DFS), Shri Debasish Panda, along with senior officials of the DFS.

During the review meeting, Smt. Sitharaman assessed various steps taken by PSBs in implementing pandemic-related measures initiated by Government of India and Reserve Bank of India (RBI) and readiness to tackle possible future disruptions that may occur due to the ongoing variant of the COVID-19 pandemic.

While appreciating the success of ECLGS, the Finance Minister said that it is not time yet to rest on our achievements and that our collective efforts must strive towards supporting sectors that face interruption due to continued onslaught of COVID-19 pandemic. Smt. Sitharaman also conveyed to the bankers to continue supporting agriculture sector, farmers, retail sector and MSMEs.

Smt. Sitharaman noted that business outlook is progressively improving in spite of the headwinds from global development and Omicron spread. The Finance Minister underlined that contact intensive sectors may require more support to help them fight against the pandemic.

On the credit demand front, the Finance Minister said that credit demand is expected to pick up on account of growth in retails segments, improvement in overall macroeconomic prospects and improving financial health of borrowers.

During the review meeting, bankers pointed out that PSBs have observed an improvement in the repayment culture in the country.

PSBs have performed well and, supported by various policy measures, provided the required impetus to the economy for coming out of shackles of pandemic induced stress.

Performance of Public Sector Banks (PSBs) —

PSBs recorded net profit of Rs 31,820 crore in FY 2020-21, highest in last 5 financial years.
Net profit of Rs 31,145 crore for the first half of FY2021-22, almost equal to that of FY 2020-21.
PSBs have effected a recovery of Rs 5,49,327 crore during the last 7 financial years.
PSBs are adequately capitalised and CRAR of PSBs as on September 2021 is 14.4%, against regulatory requirement is 11.5% (including CCB).
CET1 of PSBs was at 10.79% as on September 2021 against regulatory requirement is 8%.
PSBs recorded year-on-year credit growth of 11.3% in personal loans, 8.3% in agriculture loans and overall credit growth of 3.5%, as on September 2021.
Under Credit Outreach Programme launched in October 2021, PSBS have sanctioned an aggregate loan amount of Rs. 61,268 crore.
During the COVID-19 pandemic, PSBs have performed well in various Government schemes like ECLGS (launched in May 2020 to provide relief particularly to the MSME sector amidst the COVID-19 pandemic), LGSCAS and PM SVANidhi.
Of the extended limit of Rs. 4.5 lakh crore of ECLGS provided by the Government, 64.4% or Rs 2.9 lakh crore, sanctioned upto Nov. 2021. Over 13.5 lakh small units survived pandemic due to ECLGS, saved MSME loans worth Rs 1.8 lakh crore from slipping into non-performing assets, and saved livelihood for approx. 6 crore families.

In their assessment of overall situation, bankers were confident that PSBs are adequately capitalised and banks are prepared for any stress scenarios in future.

The Finance Minister also thanked the bankers for extraordinarily supporting the country from the start of the COVID-19 pandemic. She attributed the success of ECLGS to the collective efforts of the banking community. Smt. Sitharaman appealed to the banking community to observe COVID-19 appropriate behaviour for the safety of their staff & families and ensure that everyone is vaccinated.

In his address to the bankers, Union Minister of State Dr Bhagwat Karad said that PSBs are the power engines of our economy and congratulated the bankers for their performance during the pandemic times. Dr Karad said that moving with the times, banking has become more open and customer centric.

Earlier at the start of review meeting, SBI Chairperson gave an in-depth presentation on pre-pandemic and current scenario of banking business to the Finance Minister. Later, CMDs/MDs of various PSBs also shared their views on the overall assessment of the banking business and gave various suggestions for overall growth of business.

7-Jan-2022: Bankers say PSBs adequately capitalised and prepared for any stress scenarios in future

During the review meeting, bankers pointed out that PSBs have observed an improvement in the repayment culture in the country.

PSBs have performed well and, supported by various policy measures, provided the required impetus to the economy for coming out of shackles of pandemic induced stress.

Performance of Public Sector Banks (PSBs) —

PSBs recorded net profit of Rs 31,820 crore in FY 2020-21, highest in last 5 financial years.
Net profit of Rs 31,145 crore for the first half of FY2021-22, almost equal to that of FY 2020-21.
PSBs have effected a recovery of Rs 5,49,327 crore during the last 7 financial years.
PSBs are adequately capitalised and CRAR of PSBs as on September 2021 is 14.4%, against regulatory requirement is 11.5% (including CCB).
CET1 of PSBs was at 10.79% as on September 2021 against regulatory requirement is 8%.
PSBs recorded year-on-year credit growth of 11.3% in personal loans, 8.3% in agriculture loans and overall credit growth of 3.5%, as on September 2021.
Under Credit Outreach Programme launched in October 2021, PSBS have sanctioned an aggregate loan amount of Rs. 61,268 crore.
During the COVID-19 pandemic, PSBs have performed well in various Government schemes like ECLGS (launched in May 2020 to provide relief particularly to the MSME sector amidst the COVID-19 pandemic), LGSCAS and PM SVANidhi.
Of the extended limit of Rs. 4.5 lakh crore of ECLGS provided by the Government, 64.4% or Rs 2.9 lakh crore, sanctioned upto Nov. 2021. Over 13.5 lakh small units survived pandemic due to ECLGS, saved MSME loans worth Rs 1.8 lakh crore from slipping into non-performing assets, and saved livelihood for approx. 6 crore families.

In their assessment of overall situation, bankers were confident that PSBs are adequately capitalised and banks are prepared for any stress scenarios in future.

2020

4-Mar-2020: Cabinet approves Mega Consolidation in Public Sector Banks {PSBs} with effect from 1.4.2020

The Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi has approved the mega consolidation of ten PSBs into four which include the –

Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank
Amalgamation of Syndicate Bank into Canara Bank
Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India
Amalgamation of Allahabad Bank into Indian Bank

The amalgamation would be effective from 1.4.2020 and would result in creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rupees Eight lakh crore. The Mega consolidation would help create banks with scale comparable to global banks and capable of competing effectively in India and globally. Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system.

In addition, consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach.

Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape.

2017

23-Aug-2017: Cabinet gives in-principle approval for Public Sector Banks to amalgamate through an Alternative Mechanism

The Union Cabinet has given in-principle approval for Public Sector Banks to amalgamate through an Alternative Mechanism (AM). The decision would facilitate consolidation among the Nationalised Banks to create strong and competitive banks.

The salient features of the approval Framework for Consolidation of Public Sector Banks are as follows:

The decision regarding creating strong and competitive banks would be solely based on commercial considerations.

The proposal must start from the Boards of Banks.

The proposals received from Banks for in-principle approval to formulate schemes of amalgamation shall be placed before the Alternative Mechanism (AM).

After in-principle approval, the Banks will take steps in accordance with law and SEBI’s requirements.

The final scheme will be notified by Central Government in consultation with the Reserve Bank of India.

In 1991, it was suggested that India should have fewer but stronger Public Sector Banks. However, it was only in May 2016 that effective action to consolidate public sector banks began to be taken by announcing amalgamation of six banks into the State bank of India. The merger was completed in record time, unlike earlier mergers of State Banks of Indore and Saurashtra.

SBI is now a single bank with about 24000 branches, over 59000 ATMs, 6 lakh POS machines and over 50,000 business correspondents, which serve all parts of the country, including far flung areas. Indeed 70% of SBI’s network lies in rural and semi urban areas. In that sense, the bank serves to unite India through a uniform banking culture. It also has a significant international presence, and is one of the largest global banks. Its size, financial strength and outreach have made it possible for customers to access a worldwide network of branches across all time zones, as well as to a very wide variety of banking products and superior technology. Loans to the small business man or woman and to the Krishak have become cheaper as SBI offers the lowest lending rates. More than 8.6 lakh merchants have been on board on BHIM Aadhaar, Bharat QR and POS, increasing the digital banking footprint. SBI has successfully raised Rs.15,000 crore QIP.

There are now 20 PSBs other than SBI. The banking scenario has changed since 1970/80 when banks were nationalised, with an increased banking presence from Private Sector Banks, non-banking Financial Companies, Regional Rural Banks, Payment Banks and Small Finance Banks. The decision is expected to facilitate the creation of strong and competitive banks in public sector space to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the state exchequer.