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New Delhi, Nov 19 (IANS) The profits recorded by Public Sector Banks (PSB) in the September quarter of the current financial year appear to resemble the box office figures of a Hindi blockbuster movie.

To recap, all 12 PSBs combined reported net profit of Rs 25,685 crore in the quarter ended September 30 and the overall net profit for the first half of 2022-23 was Rs 40,991 crore. This increased by 50% and 31.6%, respectively, on an annual basis.

Let us now analyze some of the main reasons for this financial turnaround achieved by PSBs after years of accumulating non-performing assets (NPAs). The injection of funds into public banks by the government to the tune of Rs 3 lakh crore has played a major role in improving their finances.

According to experts, the recapitalization of PSOs has strengthened their resilience and improved their NAPs. Corporate debt has also fallen, which hastened their recovery.

As the recapitalization brought financial stability to state-owned banks, they were gradually able to reach a situation where they could raise funds through the issuance of bonds and even give dividends to the government, banking industry watchers pointed out. In addition, increased investment in financial assets by ordinary investors has helped improve deposits in banks.

In addition, the loan moratorium and various Emergency Line of Credit Guarantee (ECLGS) schemes as well as the restructuring announced during the Covid-19 pandemic have played an important role in improving the financial health of the PSO.

Banking industry watchers also credit the Insolvency and Bankruptcy Code (IBC) for bringing down NPAs from PSBs, as they mentioned that the legislation deterred defaulters.

After the introduction of IBC, the recovery of NPAs has improved and even the recovery period has decreased, although there is still a long way to go, they added.

The profitability of public banks has also increased due to the asset quality review measure undertaken by the government in April 2015, which brought out the NPAs of these banks.

According to the RBI’s Financial Stability Report for June 2022: “The support measures provided by the regulator during the Covid-19 pandemic have helped to halt the gross NPA ratios of regular commercial banks (SCBs) even with the end of the regulatory relief.

“Assuming no further regulatory relief and disregarding the potential impact of stressed asset purchases by National Assets Reconstruction Company Limited (NARCL), stress testing indicates that the GNPA ratio of all SCBs could improve from 5.9% in March 2022 to 5.3% by March 2023 under the baseline scenario, driven by higher anticipated bank credit growth and a downward trend in stock of GNPA.”

Thanks to these measures, public banks had also shown good results in the previous financial year, namely 2021-22.

PSBs had more than quadrupled its net profit in 2021-22.

During the period, the aggregate profit of 12 public banks was Rs 66,539 crore, up 110% from the Rs 31,816 crore recorded in the corresponding period.


Updated: November 19, 2022


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