Finance Minister Nirmala Sitharaman will announce measures in the Union Budget 2024 on February 1. With the health of public banks being relatively healthy, as pointed out by the Reserve Bank of India, executives and shareholders will keep a keen eye on the announcements for the banking sector.
During the Budget 2023, for the second straight year, no allocation was made by FM Sitharaman for the recapitalisation of public sector banks, a signal from the policymakers that the health of these PSBs is in line with expectations.
The FM recently was scheduled to meet the heads of PSBs to review the financial performance of lenders. The FM was to review various facets like financial inclusion, credit growth, asset quality, and business growth plan of banks for the next financial year, NPAs and the recovery status.
PSU banks have earned a net profit of about Rs 68,500 crore during the first six months of FY24.
Given that 2024 is an election year, the government will introduce a vote on account in February, with the complete budget slated for presentation post the General Elections.
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Banks have been raising funds from the market to augment their resources. The BJP-ruled government last gave capital support to banks in FY22 when it had earmarked Rs 20,000 crore for recapitalisation of PSBs through supplementary demands for grants.
Between FY17 and FY21, the government infused around Rs 3.11 lakh crore to recapitalise banks, out of which Rs 34,997 crore were sourced through budgetary allocation and Rs 2,76,000 crore through issuance of recapitalisation bonds to these banks.
Asset quality
In its reports released this week, the Reserve Bank of India has maintained that the country’s scheduled commercial banks are healthy and can withstand any macroeconomic shocks. The gross non-performing assets (GNPA) ratio continued to decline to a multi-year low of 3.2 per cent and the net non-performing assets (NNPA) ratio to 0.8 per cent in September 2023, the RBI said in its half-yearly Financial Stability Report (FSR).
The report said the soundness and resilience of India’s banking sector have been underpinned by ongoing improvement in asset quality, enhanced provisioning for bad loans, sustained capital adequacy and a rise in profitability.
However, ratings agency ICRA said it remains cautious over “any material weakening in asset quality levels amid higher interest rates or an unanticipated impact from regulatory changes on banks, in addition to a slowing global growth, which can have a spillover effect on certain export-oriented sectors of the economy, and a tighter liquidity environment, which might exert higher-than-expected moderation in profitability margins.”
As such, the government may keep an eye on measures required to offset external effects.
In preparation for the Union Budget, the Finance Ministry instructed the heads of PSBs to assess all cases, particularly the top 20 Insolvency and Bankruptcy Code cases, in the management of their non-performing assets.
FM Sitharaman announced in her Budget 2021-22 speech the government’s intention to establish a bad bank to address bad loans amounting to around Rs 2 lakh crore in the banking system. Additionally, the ministry conducted a review of the operations of the National Asset Reconstruction Company Limited (NARCL) in another meeting. In 2021, the Cabinet approved a proposal to provide a government guarantee of Rs 30,600 crore for security receipts issued by NARCL.
On the disinvestment front, the government’s privatisation drive has seen diminished enthusiasm, as a cautious government, concerned about accusations of selling valuable assets, opts for the sale of minority stakes on stock exchanges instead of outright privatization.
In the case of IDBI Bank, which garnered multiple Expressions of Interest (EoIs) in January 2023, the bidders are still awaiting security clearance from the government and ‘fit & proper’ approval from the RBI.
Consequently, the privatization of all the Central Public Sector Enterprises (CPSEs) in the list and IDBI Bank is likely to extend into the next financial year.
BUDGET FAQs
1. Who controls Indian banks?
The Reserve Bank of India has the authority to oversee and examine commercial banks thanks to the Banking Regulation Act of 1949.
2. When will the General Elections be held in India?
Elections will be held between April-May in 2024. However, dates haven’t been announced yet.
3. What is Indian banks’ asset quality like?
As of December, asset quality of Indian commercial banks improved to fresh 10-year high, balance sheet grew by highest in 9 years
