Mumbai: PM Narendra Modi said on Monday that record profits made by banks in FY24 would increase availability of credit to the poor, farmers, and MSMEs, hailing the turnaround of financial entities, which were facing a burden of bad loans some years ago.
Posting a link of a TOI story on X, Modi said that the banking sector has achieved a ‘remarkable turnaround in the last 10 years’ with their net profit crossing Rs 3 lakh crore in FY24.
“When we came to power, our banks were reeling with losses and high NPAs due to the phone-banking policy of UPA. The doors of the banks were closed for the poor,” Modi said. “This improvement in the health of banks will help improve credit availability to our poor, farmers and MSMEs,” he added.
Modi’s comments on X were in response to a TOI report about the banking sector achieving this milestone profit in FY24. Public sector banks have generated a record Rs 1.4 lakh crore of net profit in FY24 , an increase of 34% over Rs 1.05 lakh crore in the preceding year.
Private sector banks have grown much faster, increasing their net profit by 42% to Rs 1.7 lakh crore compared to Rs 1.2 lakh crore a year ago.
Banks have been struggling with provisions for bad loans for almost a decade, with public-sector banks bearing the brunt of the burden. Provisioning peaked in FY18 when PSBs posted a net loss of Rs 85,390 crore. This was followed by losses of Rs 66,636 crore in FY19 and Rs 25,941 crore in FY20. Between FY16 and FY20, PSBs reported a collective loss of Rs 2 lakh crore. They turned around in FY22 with a net profit of Rs 85,390 crore.
To cover the losses, govt infused Rs 3.1 lakh crore of capital over five years between FY17 and FY21. However, only Rs 34,997 crore was through Budget allocation. The remaining Rs 2.8 lakh crore came from recapitalisation bonds.
PSU banks fell into the red after they were forced to recognise large project loans as defaults. In 2017, RBI identified 12 defaulters for initiating insolvency proceedings. The defaulters were referred to as the ‘dirty dozen’ whose total bad loans amounted to nearly Rs 3.5 lakh crore.
After recapitalisation, the turnaround was supported by a string of high-profile resolutions where large businesses such as Essar and Bhushan Steel, Binani Cement. Lanco Industries, Alok Industries, Electrosteel were taken over by large corporates including Tata, Birla, Reliance and Vedanta. Govt and RBI worked together to repair the health of banks and restore confidence in the banking system and experts have attributed the turnout to these sustained efforts from authorities.
The PM has repeatedly blamed the bad loan problem with banks on what he termed “phone banking”.
