Lending Gets a Helping Hand
Recapitalisation and mergers of PSBs and other banking reforms aim to ease the liquidity crunch
The Journey So Far
The government has announced the mergers of several public sector banks (PSBs), reducing the total number from 27 to 12 over the next few years. Finance Minister Nirmala Sitharaman announced the merger of ten PSBs into four entities, which would strengthen balance sheets and allow banks to take bold lending decisions.
The government has also announced an upfront capital infusion of Rs 55,520 crore for PSBs to ease stressed balance sheets
Governance reforms include the appointment of chief risk officers for PSBs and better succession planning for senior executive positions—as well as allowing boards more flexibility in decision-making for better functioning
The government has announced a scheme to implement its budget announcement of a one-time partial credit guarantee of Rs 1 lakh crore for PSBs to purchase the pooled assets of non-banking financial companies (NBFCs) and housing finance companies. This is expected to ease the liquidity crunch in the NBFC sector.
Is It Enough?
There are concerns that the PSB mergers could distract banks from lending, especially critical in view of the severe liquidity crunch. Bank reforms have been pending for long and recapitalisation is one of the many issues that needs to be addressed. The Centre must ensure greater accountability, independence and transparency at PSBs, as well as restore confidence and trust between the banking community and borrowers
The Unfinished Agenda
The government’s merger plan needs to ensure that lending is not interrupted, and that sectors starved of credit do not suffer
The government needs to ensure that the rate cuts by the RBI are quickly passed on to consumers
Reforms at PSBs need to be carried out thoroughly to be restore trust between bankers and borrowers
BUILDING THE NATION Workers at the Toyota Kirloskar factory in Bidadi, near Bengaluru