Indian Public Sector Banks (PSBs) have a registered net profit of ₹93,675 crores in the April-September quarter, up from ₹85,520 crores in the same period last year. The baleful Non-Performing Assets (NPAs), which once became synonymous with the public sector banks, are at record low. Due to UPA era bad loans, the NPAs stood at a staggering INR 10 lakh crore by 2015, with the PSBs accounting for 90% of it.
The Twin Balance Sheet problem threw a spanner in the wheels of the Indian economy, with far-reaching cascading effects. When mega corporations as well as banks are distressed, it hampers the banks ability to dispense credit, leading to lack of investment and conditions ripe for economic stagnation.
ALSO READ: ‘Extrajudicial Killing’: SFI and Urban Naxal groups condemn Madvi Hidma encounter
The turnaround of PSBs, from unsustainable losses and high provision coverage ratios, to successive profitable quarters and clean balance sheets, has led to renewed investor interest in the public sector banks. Through a multi-pronged disciplined approach, structural reforms, deft monetary management, and enhanced digitalization over the years, the results are visible. The benefits will trickle across different sectors of the economy.
Why the growth of Indian Public Sector Banks is Great News
Money flow in an economy, which depends to a large extent on the easy availability of credit, is a crucial factor for growth and development.
Prolonged economic recession often occurs when banks don’t have enough liquidity to lend money, and consequently the lack of funds lead to reduced consumption and capital expenditure, leads to economic slowdown. The complex system of economy needs infusion of credit as a vital energizer and lifeblood.
One of the core purposes of PSBs is also to foster social welfare, support government development initiatives, and boost financial inclusion in the underserved areas. Bumper profits, efficiency, and resilient banking architecture unshackles the entrepreneurial prowess, acting as a force-multiplier.
“An interesting attribute of public banks is that they don’t only de-risk the downside, but also get a share of the upside”, said the economist Mariana Mazzucato in a 2016 interview. This creates a win-win scenario in terms of public utilities, sustainable growth, and redirecting investments towards durable value chains.
Profits with Purpose
Increasing profitability of public sector banks means more money to be disbursed for the government’s flagship social schemes aimed at boosting grassroots entrepreneurship such as PM Mudra, which disburse low-interest loans to MSMEs.
Since its inception in April 2015, the Pradhan Mantri Mudra Yojana (PMMY) has sanctioned over 52 crore loans worth ₹32.61 lakh crore. As per a SBI report, MSME lending surged from ₹8.51 lakh crore in FY14 to ₹27.25 lakh crore in FY24. The dual power of financial inclusion and easy access to credit is not only fuelling an economic transformation, but enabling social empowerment across multiple parameters.
Profits channeled simultaneously towards sustainable growth and upliftment of the weaker sections creates a holistic society that aims to leave no one behind. The ‘trickle down’ doesn’t only stay at a top wafer, but percolates downstream as well.
Over 68% beneficiaries of PM Mudra loans have been women, a landmark move towards increasing women’s share in the workforce, which since 1991 liberalization hasn’t increased proportionately. Over 50% of the loans have been granted to the subaltern sections and marginalized groups.
The pursuit of life, liberty, and happiness as well as building inclusive social institutions in India cannot take place without government outlay and long-term banking blueprints, which require profitable public banks, efficient financial management, and fiscal prudence.
When Jawahar Lal Nehru famously derided ‘profit’ as a ‘dirty word’ to industrialist JRD Tata, signifying the mistrust of a generation nourished on the staple diet of Fabian socialism, the fallacy was that private profit cannot be channeled towards social utility and collective commons.
That script has been flipped. Investor confidence, healthy balance sheets, economic growth, and social upliftment are all interlinked and not mutually exclusive. This is the great lesson from the rejuvenation of public banks.
