Strengthening The Core Of Banking Through Public Sector Banks

The recent incidents in the banking sector in India have spotlighted its weak spots.

- Ellora De, Isha Chakraborty And Rohit Prasad

At places, the banking officials are underplaying the issue but the public sector banks seem worried about risky investments and are apprehensive of providing bad loans. The recent scams have shaken public confidence. As of December 2017, India’s listed banks had bad loans of around ₹8.4 lakh crore. It can be noted that Punjab National Bank’s loss from the Nirav Modi scam will be less than 0.2% of the bad loans of commercial banks.

Out of the total 21 public sector banks, 11 are now under the RBI’s Plan of Prompt Corrective Action (PCA). More and more banks are being inserted in this plan. This plan imposes certain restrictions on banks for performing operations, hiring candidates and also involves certain restrictions on the banking management system.

The cumulative loss of public sector banks crossed a whopping ₹87,357 crore in the 2017-18 fiscal year (FY). Out of the total 21 banks, only two have submitted their profit reports in 2017-18 FY. The Indian Bank posted a profit of ₹1,258.99 crore and Vijaya Bank’s profit was of ₹727.02 crore. The rest were running at loss of about ₹87,357 crore during the 2017-18 FY. India’s largest bank, the State Bank of India (SBI) also suffered a net loss of about ₹6,547.45 crore in 2017-18 FY as compared to a net profit of ₹10,484.1 crore in 2016-17.

The role of the public sector banks (PSB) cannot be undermined in the context of India’s economic growth. They cater extensively to India’s rural population and there are various socio economic agendas that the public sector banks cater to. The circumstances under which the PSBs sanction loans, the markets that they take into account and the constraints that they face are vastly different from the private sector banks.

Background of the present crisis in banking sector