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The banking sector will undergo major reforms in 2022;  Privatization, Idbi Bank puts investment on the agenda

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The banking sector will undergo major reforms in 2022; Privatization, Idbi Bank puts investment on the agenda

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The banking sector is expected to undergo significant reforms over the coming year with the privatization of public sector banks and the strategic divestment of IDBI Bank on the government’s agenda for 2022. All in all, the situation emerging coronavirus, particularly in the wake of the Omicron variant, could hamper the pace of reforms.

According to the figures, the banking sector performed rather well in 2021, despite the impact of the second wave of the pandemic. In line with the government’s 4Rs strategy of recognition, resolution, recapitalization and reform, banking sector non-performing assets (NPAs) decreased to Rs 8,35,051 crore as of March 31, 2021.

According to the Financial Stability Report (FSR) released by the Reserve Bank of India (RBI) in July 2021, macro stress tests, based on regression modeling, indicate that the ratio of gross non-performing assets (GNPA) of programmed commercial banks, in the baseline scenario, could rise from 7.48% in March 2021 to 9.80% by March 2022. The net profit of public sector banks (BSP) jumped to 14 012 crore rupees in the first quarter and further increased to 17,132 crore rupees in the first quarter. second quarter ended September 2021. The combined profit (Rs 31,114 crore) for the first half of the current fiscal year is close to the total realized profit (Rs 31,820 crore) during the entire previous fiscal year ( 2020-2021).

Likewise, private sector banks including HDFC Bank, ICICI Bank and Kotak Mahindra Bank also recorded healthy profits with a reduction in bad debts. The improved financial health coupled with the new public sector enterprise (PSE) policy has paved the way for the privatization of public sector banks, a long overdue financial sector reform.

Many government officials compared the new PES policy to landmark reforms since 1991. Unveiling the PES policy in the 2021-2022 budget, Finance Minister Nirmala Sitharaman said that in less than four strategic areas, PES in other sectors would be ceded.

The four sectors are atomic energy, space and defense; transport and telecommunications; energy, petroleum, coal and other minerals; and banking, insurance and financial services in non-core sectors. In accordance with PES policy, the Minister of Finance also announced in the budget the privatization of two PSBs as part of the divestment campaign to collect Rs 1.75 lakh crore.

The Banking Laws (Amendment) Bill, which could be presented in the next budget session, is expected to help reduce the minimum government participation in PSOs from 51% to 26%. The government think tank NITI Aayog has previously suggested the privatization of two banks and an insurance company to the Core Group of Secretaries on Disinvestment. Sources say the Central Bank of India and the Indian Overseas Bank are likely candidates for privatization.

Recently, in a response to Parliament, Sitharaman said the Cabinet had taken no decision on the privatization of two PSBs. Regarding the strategic sale of IDBI Bank, the government is preparing to invite expressions of interest from entities interested in acquiring the LIC-controlled lender soon.

In May, the Cabinet gave its approval in principle to the strategic divestment of IDBI Bank as well as the transfer of management control. The central government and LIC together hold more than 94 percent of the capital of IDBI Bank. At present, LIC holds management control with a 49.24 percent stake while the government holds 45.48 percent. Non-promoter shareholding amounts to approximately 5.29 percent.

When it comes to the financial health of the banking sector, the majority with the public sector has been a story of recovery with lenders generating record profits. As a result, the PSBs raised capital funds to the tune of Rs 58,697 crore during the last financial year, the highest amount mobilized during a financial year.

At RBI’s request, private sector lenders have also raised funds to protect themselves from future uncertainties. The capital adequacy ratio (CAR) of PSOs increased to 14.3% at the end of June 2021, while the provision coverage ratio of public sector banks peaked at 84% in eight years .

Despite the widespread impact of the pandemic on the economy, the recovery during the year was robust by more than 10%. At the same time, the profitability of public sector banks improved on a consolidated basis after the merger.

The profitability of the State Bank of India, in which five associated banks of SBI and Bhartiya Mahila Bank merged with effect from April 1, 2017, improved from a loss of 1,378.35 crore of Rs in fiscal year 2016-17 to profit of Rs 20,410.47 crore in 2020-21. Likewise, Bank of Baroda, in which Vijaya Bank and Dena Bank were merged from April 1, 2019, showed an improvement from a loss of Rs 8,339.27 crore in 2018-19 to a profit from Rs 828.96 crore in 2020-21.

In the case of Punjab National Bank, in which Oriental Bank of Commerce and United Bank of India merged from April 2020, performance improved from a loss of Rs 8,310.93 crore in 2019 -2020 to a profit of Rs 2,021.62 crore in 2020-21. To support industry and businesses affected by COVID, the banking sector, in alliance with the government, played a critical role during the year.

For example, under the Emergency Credit Lines Guarantee Program (ECLGS) which was 100% backed by the central government, banks and non-bank financial corporations (NBFCs) sanctioned loans in the amount of of Rs 2.97 lakh crore as of November 26, 2021. Regarding the resolutions, the PSBs, as on November 26, have restructured 9.8 lakh MSME accounts amounting to Rs 58,524 crore, and 8.5 lakh accounts Loans from individual borrowers amounting to Rs 60,662 crore have been recast so far.

Under PM Street Vendor’s AtmaNirbharNidhi (PM SVANidhi) program, 30.23 lakh street vendors were granted access to credit amounting to Rs 3,054 crore until November 30. In addition, the government launched a national credit awareness program on October 16, 2021, under which banks have been organizing special camps across the country to offer loans to eligible borrowers.

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The banking sector will undergo major reforms in 2022; Privatization, Idbi Bank puts investment on the agenda

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