Public Sector Banks (PSBs) have registered a significant growth in the July-September quarter of the year 2022. Public sector banks’ asset quality has improved, their profits have increased and they have registered an impressive pace of credit growth in the July-September quarter.
The performance of this sector is also getting reflected in the stock market performance of the banks related to them.
Talking about better asset quality, it is measured as gross non-performing assets as a percentage of total advances (GNPA ratio) and has seen continuous improvement.
For example, Canara Bank’s GNPA ratio has declined from 7.80 per cent in December 2021 to 6.37 per cent in September 2022 while Union Bank of India’s GNPA ratio has declined from 11.6 per cent in December 2021 to 8.45 per cent in September 2022. The decrease in GNPA can be explained by better recoveries.
If an analysis is done on better borrowing rates, borrowers availing the Emergency Credit Line Guarantee Scheme (ECLGS) demonstrated good repayment behavior to help lenders tide over the challenges posed by the pandemic by providing 100 per cent guarantee Is.
If we talk about the reasons for making profit of public sector banks, the main reason for this is the increase in loans including housing and corporate loans. Simultaneously, interest income, which includes interest on advances and interest on investments, has seen a sharp increase, while banks have been able to pass on higher rates to borrowers. Due to this, the net interest margin of the banks has also increased.
Along with this, cleanup of stressed assets, better regulation, faster credit growth and improvement in corporate credit demand have contributed to the profitability of public sector banks.
If we talk about its impact on the customers, then it has eased the norms for availing loans. Better interest rates have come to the fore.
Along with this, more rules have been made to identify the defaulters. Overall it is also protecting the public money.
If the impact on banks is discussed, as banks’ stock of non-performing assets shrinks, and the latest slippage from standard to non-performing assets subsides, banks may not need to set aside as much funds Is.
At the same time, extended regulatory forbearance after the global financial crisis has made loans evergreen and hidden the vulnerability of the banking sector. Due to this, the financial condition of the banks has also improved a lot.
If the concerns of public sector banks are highlighted, the major issue is the exploitation of customers by the banks by using the high market demand of their banks. simultaneously
Increase in credit by customers may also increase the risk of higher defaults in future due to economic downturn and other conditions like pandemic. Bank funds may also decrease in future due to less focus on market stabilization strategy by banks.
-OJAANK SHUKLA
( DIRECTOR – OJAANK IAS )