Health of Public Sector Banks.

 As per the Reserve Bank of India's  recent report on "Trend and Progress of Banking in  India " the Banking sector remained resilient through out the Covid19 pandemic due to extraordinary policy interventions adopted by the central bank and government. Higher capital,better liquidity buffers and low leverage allowed them to cushion the shock of pandemic. Measures such as moratorium on payment of loan installments assets classification stand still restructuring of loans and restriction on dividend payments alleviated the stress,while helping banks to continue to provide credit to productive sectors. However credit growth of Scheduled commercial banks (SCBs)remained subdued in 2021,but non Banking financial companies have stepped up to fill the gap. Available data for 2021-22 indicate that so far both Gross and Net Non Performing Assets (NPA)have moderated while other indicators like provision coverage ratios (PCRs) capital buffers and profitability indications have improved in relation to pre pandemic levels. Resolutions of  stressed assets during the two waves of covid announced by RBI Resolution Framework (RF)1.0 and 2.0 provided relief to borrowers like individuals, small businesses and MSMEs and lending institutions. Eventhough there has been a slow revival in the credit offtake of banks in 2021 to the extent of 7.1% on year on basis it was mostly due to retail business. On the whole sale side which public sector entities is showing significant increase, growth in credit to non public sector undertakings, non financial entities witnessed decline continuously almost two years with a modest growth position for AA and above rated companies. It can be attributed to factors like slow down in industrial activity, constrained credit demand and  stressed balance sheet of bank's credit supply. 

The health of our public sector banks (PSBs) may be compared with private banks and foreign banks in terms of following indicators.According to a comparative study  done for the five year period 2008-09 -2012 -13 with September 2021 showed that the average net interest margin  of public sector banks which were 2.6% marginally increased to 2.8% in September 2021 whereas for private banks it increased from 3.1% to 4% and foreign banks showed same level of 4% in both period.Return of Asset(ROA) of public sector banks which was 0.9% in the five year period it declined to 0.5% in September 2021 whereas for private banks it declined from 1.48% to1.3 and for foreign banks from 1.7% to 1.5 respectively, Return on equity (ROE) for public sector banks which was very high at 16.2% during 2008-09- 2012-13 leveraged to mere 7.7 and for private banks which were 13.6% declined to 10.8% and for foreign banks ROE declined from 10.7 to 8.5%. Capital Risk Asset Ratio which was 13.1% for public sector banks increased to 14.4% whereas that of private banks and foreign banks increased from 16.9% and 16.6% to 18.7% and 18.9% respectively. Distressingly the net non Performing assets (NNPAs) of public sector banks which was only 1.34 % during 2008-09-2012-13  more than doubled to 3% in September 2021,whereas that of private banks increased from 0.8% to 1.3% on the contrary for foreign banks it reduced  from 1.2%:to 0 .7 %.On the other hand Gross non performing assets of PSBs which was   10.3% in 2019-20 declined to 9.1% in 2020-21 as against from 5.5 to 4.9 % by private banks and from 2.3 to 3.6 % to foreign banks.More over current and savings accounts (CASA) growth in September 2021 was 11.6% to PSBs compared to 22.8% for private and 17.2% for foreign banks. Further the operating expenses of PSBs as a proportion of their total income have risen sharply from 18% during the five year period to 24.4% as against  more or less the same level maintained by both private and foreign banks. 

  Eventhough the performance of public sector banks with regard to few indicators are not encouraging it is heartening to note that they have recorded net profit of ₹31820 crores in financial year 2020-2021 highest in last five years. They are adequately capitalized and their CRAR as on September 2021 stood at 14.4% as against regulatory requirement of 11.5%.During the pandemic PSBs have performed commendable work in various government schemes like Emergeny Credit Line Guarantee Scheme (ECLGS)to provide relief particularly to MSME sector,  Loan guarantees scheme for covid affected sectors-LGSCAS and PM street vendors atmanirbhar Nidhi-PMSVA Nidhi.It is estimated that over 13.5 lakh small units survived pandemic due to ECLGS saved rupees 1.8 lakh crores from slipping into Non Performing Assets and provided livelihoods for approximately 6 crores households. 

  Advocates of privatisation of public sector banks argue that many of the PSBs have higher levels of stressed assets than private banks and also lag in profitability, market capitalisation and dividend payment record.  The initial plan of the government's was to privatise 4 PSBs with the first two,the government is likely to go for divestment in two or three in next financial year .This measure will free up government the majority owner from continuing equity support year after year. Various committees had proposed bringing down the  government stake of PSBs to below 51% and to 33%. Opponent's of privatisation argue in terms of large scale financial exclusion of vulnerable sections of society by indiscriminate privatisation of  public sector banks and loss of jobs to vulnerable sections due to absence of reservation in the private sector.In any case the governance of public sector banks must be improved .More autonomy and professionalism must be implemented entrusting the management with powers to hire and fire and to introduce innovative competitive financial products to sustain the health of public sector banks.