The banking sector will see significant reforms in the new year

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All in all, the emerging coronavirus situation, particularly in the wake of the Omicron variant, could hamper the pace of reforms.

According to the figures, the banking sector performed rather well in 2021, despite the impact of the second wave of the pandemic.

In line with the government’s 4R strategy for recognition, resolution, recapitalization and reforms, non-productive assets (NPAs) in the banking sector have declined to ??8 35,051 crore as of March 31, 2021.

According to the Financial Stability Report (FSR) released by the Reserve Bank of India (RBI) in July 2021, macro stress tests, based on a regression model, indicate that the ratio of non-performing assets gross (GNPA) of programmed commercial banks, according to the baseline scenario, could drop from 7.48% in March 2021 to 9.80% by March 2022.

The net profit of public sector banks (PSBs) jumped to ??14,012 crore in the first quarter and increased further to ??17,132 crore in the second quarter ended September 2021.

The combined profit ( ??31,114 crore) of the first half of the current financial year is close to the total realized profit ( ??31,820 crore) during the entire preceding financial year (2020-21).

Likewise, private sector banks including HDFC Bank, ICICI Bank and Kotak Mahindra Bank also posted healthy profits with a reduction in bad debts.

The improved financial health coupled with the new public sector enterprise (PSE) policy has paved the way for the privatization of public sector banks, a long overdue financial sector reform.

Many officials have compared the new PES policy to landmark reforms since 1991.

Unveiling the PES policy in the 2021-2022 budget, Finance Minister Nirmala Sitharaman said that less than four strategic areas, PES in other sectors would be ceded.

The four sectors are atomic energy, space and defense; transport and telecommunications; electricity, petroleum, coal and other minerals; and banking, insurance and financial services in non-core sectors.

In accordance with PES policy, the Minister of Finance also announced in the budget the privatization of two PSBs as part of a divestment campaign aimed at collecting ??1.75 lakh crore.

The banking law (amendment) bill, which could be presented in the next budget session, is expected to help raise the minimum government participation in PSOs from 51% to 26%.

The government think tank NITI Aayog has previously suggested the privatization of two banks and an insurance company to the Core Group of Secretaries on Disinvestment.

Sources say the Central Bank of India and the Indian Overseas Bank are likely candidates for privatization. Recently, in a response to Parliament, Sitharaman said the Cabinet had taken no decision on the privatization of two PSBs.

Regarding the strategic sale of IDBI Bank, the government is preparing to invite the expression of interest from entities interested in acquiring the lender controlled by LIC soon.

In May, the Cabinet gave its approval in principle to the strategic divestment of IDBI Bank as well as the transfer of management control. The central government and LIC together hold more than 94 percent of the capital of IDBI Bank.

At present, LIC holds management control with a 49.24 percent stake while the government holds 45.48 percent. Non-promoter shareholding amounts to approximately 5.29 percent.

When it comes to the financial health of the banking sector, the majority with the public sector has been a story of recovery with lenders generating record profits.

As a result, the PSOs have raised capital to the tune of ??58,697 crore in the last financial year, the highest amount mobilized during a financial year. At RBI’s request, private sector lenders have also raised funds to protect themselves from future uncertainties.

The capital adequacy ratio (CAR) of PSOs increased to 14.3% at the end of June 2021, while the provision coverage ratio of public sector banks peaked at 84% in eight years .

Despite the widespread impact of the pandemic on the economy, the recovery during the year was robust by more than 10%. At the same time, the profitability of public sector banks improved on a consolidated basis after the merger.

The profitability of the State Bank of India, in which five associated banks of SBI and Bhartiya Mahila Bank merged with effect from April 1, 2017, improved after a loss of ??1,378.35 crore during the 2016-17 financial year for a profit of ??20,410.47 crore in 2020-21.

Likewise, Bank of Baroda, in which Vijaya Bank and Dena Bank were merged from April 1, 2019, showed improvement after losing ??8,339.27 crore in 2018-19 for a profit of ??828.96 crores in 2020-21.

In the case of Punjab National Bank, in which Oriental Bank of Commerce and United Bank of India merged from April 2020, performance improved after a loss of ??8,310.93 crore in 2019-2020 for a profit of ??2,021.62 crores in 2020-2021.

To support industry and businesses affected by COVID, the banking sector, in alliance with the government, played a critical role during the year.

For example, under the Emergency Credit Lines Guarantee Program (ECLGS) which was backed by a 100% guarantee from the central government, banks and non-bank financial corporations (NBFCs) sanctioned loans of an amount of ??2.97 lakh crore as of November 26, 2021.

Regarding the resolutions, the PSBs, as on November 26, have restructured 9.8 lakh of MSME accounts amounting to ??58,524 crore and 8.5 lakh loan accounts of individual borrowers amounting to ??60,662 crore has been recast so far.

Under the AtmaNirbharNidhi (PM SVANidhi) program of PM street vendor, 30.23 lakh street vendors were granted access to credit amounting to ??3054 crore until November 30.

In addition, the government launched a national credit awareness program on October 16, 2021, in which banks organized special camps across the country to provide loans to eligible borrowers.

This story was posted from an agency feed with no text editing.

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