The condition of Indian banks is already improving, but it is necessary to maintain vigilance.

You may recall that some time back, the Reserve Bank of India had placed 11 public sector banks under the prompt corrective action framework after bad loans in these banks had risen to alarming levels. During the last few years public sector banks were facing many problems including low capital base, non-professional management, demoralized employees and huge inefficiencies. However, the Central Government and the Reserve Bank of India took several measures with a view to improve the financial condition of Indian banks and during the five financial years (from the financial year 2016-17 to 2020-21), the Central Government decided to recapitalize the public sector banks. Made an unprecedented investment of Rs 3,10,997 crore for this. This provided the necessary support to these banks and eliminated the apprehension of any default on their part. Recently, the annual report has been released by the Reserve Bank of India. In this report, the financial condition of Indian banks has been described as strong and according to this report, in the period ending December 2022, the capital adequacy ratio in the Indian banking sector is 16.1 percent, the percentage of gross non-performing assets is 4.41 percent and the provision coverage ratio is 73.20 percent. . In the financial year 2017-18, where the public sector banks had shown a net loss of Rs 85,390 crore, in the financial year 2021-22, these banks have earned a profit of Rs 66,539 crore and now it is estimated that the financial year In 2022-23, the profit of public sector banks in India can cross the figure of one lakh crore. In this way, the public sector banks have been rejuvenated in a way.

Banking industry is considered to be the backbone of the economy in any country. If the problems coming in the banking industry are not diagnosed on time, then later this problem can affect other industries of that country and slow down the pace of economic development of that country. Therefore, during the last 9 years, the Central Government has made many sincere efforts to solve almost all kinds of problems of the banks. Insolvency and Bankruptcy Code has been implemented to deal with non-performing assets. Monetary Policy Committee has been formed for the purpose of implementing the right interest rates in the country. Also, on August 30, 2019, the country’s Finance Minister Nirmala Sitharaman announced the merger of public sector banks with the aim of making the banking sector stronger. The merger of public sector banks with each other was announced with the aim of unlocking the potential of public sector banks through consolidation. In the merger of these banks, special care was taken that due to their merger, no customer should face any kind of problem, they should be on the same platform in terms of technology, the culture of these banks should be the same and The growth in the business of banks should be visible. In the year 2017, there were 27 public sector banks in India, but after their merger, now only 12 public sector banks will remain. Thus, public sector banks are being shaped into next generation banks in the country. The increased size of these public sector banks after the said merger has increased the credit lending capacity of these banks unprecedentedly. Along with the strong presence of these banks at the national level, they have now reached at the international level as well. After the merger, the operating cost of these banks has come down, which has also improved the cost of loans being provided by them. Special emphasis is being laid by these banks on adoption of new technology for banking business, due to which there is a significant improvement in their productivity. The ability of these banks to raise resources from the market has also improved.

With the joint efforts of the Central Government and the Reserve Bank of India, the capital adequacy ratio of all classified commercial banks in India has reached a commendable level of 16.7 per cent for the period ended March 31, 2022. While as per international norms, banks are required to have a minimum capital adequacy ratio of 8 per cent (and 10.5 per cent including capital conservative buffer of 2.5 per cent). Similarly, the return on assets and return on equity of classified commercial banks in India have also been satisfactory during this period, due to which the capital adequacy ratio is also improving continuously, which increased from 14.7 percent in March 2020 to 15.8 percent in September 2020. It has become 16 percent in March 2021 and has increased to 16.7 percent in March 2022.

The percentage of gross non-performing assets and net non-performing assets in classified commercial banks have also come down to 5.0 percent (lowest in last 7 years) and 1.3 percent (lowest in last 10 years) respectively in the quarter ended September 30, 2022 . Gross non-performing assets stood at 8.4 per cent in March 2020, 7.3 per cent in March 2021 and 5.9 per cent in March 2022. Also, the net non-performing assets have been 3.0 per cent in March 2020, 2.4 per cent in March 2021 and 1.7 per cent in March 2022. During the Corona epidemic, the Reserve Bank of India had given exemption to the affected loan account holders in the payment of interest and installments to be paid by them, due to which there has also been a decrease in non-performing assets. But the provision coverage ratio of the said banks has improved and it has increased from 67.6 per cent as on March 2021 to 70.9 per cent as on March 31, 2022. This means that these banks have made adequate provisions for non-performing assets in their accounts. If there is a problem with these non-performing assets in the future, it will be easier for banks to deal with such problems.

According to a recent assessment, 160 big US banks (those with assets of more than US$ 500 million) have lost US$ 20,600 million. America’s rating agencies Standard & Poor’s and Fitch have downgraded the rating of some banks to junk category as these banks are not in a position to return the amount to their depositors. America’s biggest banks are also facing huge economic problems as the market value of their investment in US bonds has come down. USD 4,700 million to Citibank Group, USD 2,120 million to Bank of America, USD 1,730 million to JPMorgan Chase, USD 1,360 million to Truist Financial, USD 1,340 million to Wellz Fargo and USD 1,140 million to US Bank Corp. Dollar loss. All these are big banks so they will bear this loss but small banks are bound to fail. So far two banks (Silicon Valley Bank and Signature Bank) have closed and 6 other small size banks (including First Republic Bank, Western Alliance Bank, PacWest, UMB Financial) were in serious trouble. A serious cash and liquidity problem has arisen in these banks and they do not have sufficient funds available to pay their depositors. The share prices of these banks have fallen between 14 to 30 percent in the capital market.

But in India as per RBI rules Indian banks have to maintain 4.5 percent cash reserve ratio and 18 percent statutory reserve ratio. Under which banks have to deposit the said amount with the Reserve Bank of India in the form of cash and government securities, so that banks do not face liquidity problems. Also, deposits in Indian banks are insured up to Rs 5 lakh per depositor’s account. Therefore, the impact of the crisis on American banks is not visible on Indian banks. Rather, due to the strong position of Indian banks mentioned above, the Reserve Bank of India is being praised a lot in the whole world because it has brought Indian banks to such a strong position today. Recently, Reserve Bank of India Governor Dr. Shaktikanta Das has been announced to be awarded the “Governor of the Year” award internationally for the year 2023 by Central Banking, an international economic research journal.

Nevertheless, there is still a need to be cautious about the overall financial health of Indian banks. Because during the inspection of various banks by the Reserve Bank of India, it has been found that the situation in some banks is not good regarding the issue of corporate governance. Therefore, the issue of corporate governance needs to be given special attention to these banks. Banks have to take special care of their depositors so that their deposits remain safe in the banks. It is also necessary to avoid over-ambitious ways of disbursing credit. Due to this, the business of banks increases at a rapid pace, but many times they have to face many difficulties in the recovery of the loans provided in this way. When there is a crisis in the banking sector of any country, it has often been found that this crisis turns into an economic crisis in the whole country.

Some banks try to show their financial performance better by adopting smart accounting method and non-performing assets are also hidden by some other banks, such efforts can hide the financial condition of the banks for some time but in the long run These banks may have to face huge problems. Therefore, such efforts should not be made. Some banks are found taking huge risks even in order to achieve very ambitious growth rates in the banking business. For example, providing loan at interest rate less than the market rate and comparatively higher interest on deposit etc., such efforts appear to have an adverse effect on the profitability of the bank. Some banks also need to pay special attention to asset liability management, otherwise the problem of asset liability imbalance and liquidity may arise in the bank.

Several banks have declared performance related results for the financial year ended 31st March 2023, according to these results, many banks including public sector banks have registered an incomparable increase in their business and profitability. In order to sustain this financial performance, banks need to pay special attention to the above mentioned points.

– Prahlad Sabnani

retired deputy general manager

state Bank of India