The Central government led by Prime Minister Narendra Modi has implemented a slew of measures to improve the health of the banking sector, including the recapitalising of public sector banks, reforming insolvency laws, and merging banks, finance minister Nirmala Sitharaman said on Friday.
Discussing the ‘White Paper on the Indian Economy’ in the Lok Sabha, Sitharaman accused the previous United Progressive Alliance-led government, that was in power for two terms until 2014, of fiscal mismanagement and ruining the financial health of state-run banks.
“Gross NPA ratio in PSBs increased by 12.3% in 2013 while the gross NPA in PSBs in 2009-10 was 2.2%,” Sitharaman said. Non-performing assets, or NPAs, are loans unlikely to be repaid to banks. A high gross NPA ratio indicates the poor quality of such assets.
Return on assets of PSBs fell from 0.97% to 0.5% between 2009-10 and 2013-14, Sitharaman said.
“Cost of funds and costs of deposits also increased during the same period. Banks didn’t recognise bad loans and even evergreening took place,” she added.
Evergreening refers to banks advancing fresh loans to a borrower so the borrower can repay the existing loan, effectively masking the extent of bad loans on a bank's books.
On Thursday, the ruling National Democratic Alliance (NDA) government and the opposition Congress party locked horns over the white paper, which accuses the previous UPA regime of undermining the country’s macroeconomic fundamentals.
The Congress party hit back at the government, citing rising prices and unemployment.
The debate over the economic track record before and after 2014 highlighted major shocks that India’s economy underwent under both regimes, how the respective governments dealt with them, effectiveness of fiscal stimulus measures, as well as persisting issues of inflation and insufficient job creation.
“There are stark stories on different governments’ handling of crises. The comparison shown in the white paper shows how if the government handles it with true sincerity, transparency, and putting the nation first, the results are there for everybody to see,” Sitharaman said on Friday.
“So what happened after 2008, when there was a global financial crisis, and what happened post-pandemic clearly shows that if the intent of the government is sincere, good results will come,” she added.
Public sector banks, which have received capital infusion from the government and executed various reform initiatives over the years, have seen marked reductions in bad loans and rising advances.
Profits reported by state-owned banks crossed ₹98,000 crore in the first three quarters of 2023-24, and are expected to exceed ₹1.3 trillion by the end of the financial year.
“Today, PSBs are profit-making and giving record dividends to the government,” Sitharaman said.
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