At present, public sector banks are facing shortage of capital. Therefore, in order to improve the health of the public sector banks, a proposal to give 70,000 crore as recapitalization has been done in the budget. During the financial year 2018-19, Modi Government provided public sector banks to the tune of Rs.1.6 lakh crore as recapitalization, which till now has the maximum assistance given to public sector banks. This initiative of the government has helped 5 public sector banks to come out of the “Prompt Corrective Action” (PCA) framework. It is worth mentioning that since the financial year 2016, debt of Rs.17 lakh crore has been converted into Non Performed Assets (NPA). If seen, public sector banks have taken this step to clean their balance sheet. However, most of the banks in the country have provisioned more than 75 percent, due to which provision coverage of banks has reached the highest level of 7 years.
Recovery is accelerating from IBC’s provisions
Strictness in the banking sector and the implementation of various measures has accelerated recovery of NPAs. The amount of NPA has decreased by Rs.1 lakh crore. In the last four years, the banks have recovered Rs.4 lakh crore, thereby providing relief to the distressed banking sector. The speed at which banks are recovering with the help of Insolvency and Bankruptcy Code (IBC), it seems that the financial health of the banks will be even better in the coming months.
Initiatives to curb corruption
In order to curb corruption, a provision in the budget has made that no person will deposit cash in another person’s account. With the proposed provision, the account holders will be able to manage cash in their accounts and avoid unnecessary unsolicited troubles.
Merger of banks is beneficial
It is proposed to merge banks to make the banking sector more powerful. In the future, only 8 big government banks will be in the country. This will help banks get out of the PCA framework. Banks are inserted into the PCA framework only when the Reserve Bank of India believes that adequate capital is not available to bank to meet the risk and income from borrowed money is not receiving. Banks are therefore inserted in the PCA Framework, so that immediate steps can be taken to improve their financial health.
For inserting the name of banks in PCA framework, the Reserve Bank analyze the performance of certain fixed parameters such as cash reserve ratio (CRR), net NPA and receipt from assets etc. By the end of June 2019, there were 5 public sector banks in the PCA framework. After coming into PCA framework, banks are unable to lend to customers. Since the main source of income of the banks is to disburse the loan, therefore, the banks’ income is severely affected by a ban on this. For this reason, Punjab National Bank and Union Bank of India have suffered losses in the June quarter.
The goal of making an economy of 5 trillion dollars
In the budget speech, the Finance Minister said that India could achieve the goal of making an economy of 5 trillion dollars. For this, the infrastructure needs to be strengthened and the GDP rate should be maintained at 8% level. According to the speed at which the Indian economy is moving forward, the Indian economy in the current financial year could be worth 3 trillion dollars. According to the finance minister, the size of the Indian economy was 5 years ago, $ 1,850 billion, which has now increased to $ 2,700 billion. In the budget speech, the Finance Minister said that in order to achieve this, the government will have to resort to measures like enhancing private investment, increasing savings and consumption, generate employment, fiscal management etc.
In the economic survey presented on July 4, Finance Minister Nirmala Sitharaman said that India’s GDP growth could be increased in 2019. According to the finance minister, India can become the fifth largest economy in the world by leaving behind the UK in the current financial year, despite the decline in foreign direct investment across the world during the last three years, FDI in India in 2018-19, has increased 6 percent which is more than $ 64 billion in amount. Recently, there has been an increase in direct tax. It has increased from Rs.6.8 lakh crore to Rs.11.37 lakh crore.
It can be said that the Modi government is making serious efforts to improve the banking sector’s health. The government knows that the Indian economy cannot be made to 5 trillion dollars without reforming the banking sector. Providing capital to public sector banks, accelerating recovery under IBC, integration of banks, improvement in credit distribution, increase demand for various products, increase in employment generation etc. will improve the health of the banks. It is believed that by the help of these initiatives, the government will move forward towards making the Indian economy 5 trillion dollars.
By Satish Singh
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