What Is the Plan for Public Sector Banks?

What exactly does the present government have in mind for public sector banks (PSBs)? As the government enters the final year of its term, we simply do not know. It may well be that the government itself does not know. India’s twin balance sheet problem—high debt amongst corporates and high non-performing assets (NPAs) at banks, mostly PSBs—remains unresolved and is acting as a drag on the economy.

Banks’ NPAs have risen from ₹2.6 lakh crore in 2013–14 (around the time the present government assumed office) to an estimated ₹10 lakh crore in March 2018. A large portion of the increase is because of non-resolution of NPAs and interest piling up on interest. Some of the increase is because of the tougher norms for NPA recognition that have been put in place. Fresh slippages—more loans turning bad—account for the rest of the increase. As NPAs have risen, so have provisions and losses at PSBs. Capital at PSBs has eroded and has not been adequately replenished through infusion.