The Indian government has significantly bolstered the financial health of public sector banks (PSBs) over the last decade through substantial capital infusions. This move aims to strengthen the banking sector, ensure credit growth, and address non-performing assets (NPAs). According to data from the Ministry of Finance, the government has injected over ₹3.5 lakh crore ($47 billion) into PSBs since 2014.
The capital infusion has been a critical component of the government’s strategy to revive the banking sector, which faced challenges due to rising NPAs and economic slowdowns. The funds have been utilized for provisioning against bad loans, supporting mergers, and meeting regulatory capital requirements.
Key Highlights of the Last Decade:
- 2014-2017: The government initiated the recapitalization plan with an infusion of ₹70,000 crore under the Indradhanush scheme.
- 2017-2019: A massive ₹2.11 lakh crore was injected as part of the Bank Recapitalization Plan, focusing on resolving NPAs and supporting mergers.
- 2020-2021: Amid the COVID-19 pandemic, the government allocated ₹20,000 crore to ensure liquidity and support economic recovery.
- 2022-2023: An additional ₹50,000 crore was infused to strengthen balance sheets and promote credit growth.
Chart: Capital Infusion in Public Sector Banks (2014-2023)
| Year | Capital Infusion (₹ in Crore) |
|---|---|
| 2014-2015 | 25,000 |
| 2015-2016 | 25,000 |
| 2016-2017 | 20,000 |
| 2017-2018 | 88,000 |
| 2018-2019 | 1,23,000 |
| 2019-2020 | 70,000 |
| 2020-2021 | 20,000 |
| 2021-2022 | 15,000 |
| 2022-2023 | 50,000 |
| Total | 3,56,000 |
Source: Ministry of Finance, Government of India
Impact of Capital Infusion:
The recapitalization has led to a significant improvement in the financial health of PSBs. The gross NPA ratio of PSBs declined from 14.6% in March 2018 to 5.53% in March 2023. Additionally, the capital adequacy ratio (CAR) of PSBs has improved, ensuring compliance with Basel-III norms.
Economists and banking experts have lauded the government’s efforts but emphasize the need for continued reforms. “While the capital infusion has stabilized the sector, PSBs must focus on improving governance and operational efficiency to remain competitive,” said Dr. Ramesh Kumar, a senior economist at the Indian Institute of Finance.
The government has indicated its commitment to further strengthening the banking sector. With the introduction of the Bad Bank (National Asset Reconstruction Company Limited) and continued reforms, PSBs are expected to play a pivotal role in India’s economic growth. As the Indian economy continues to recover post-pandemic, the health of public sector banks will remain a key focus area for policymakers.
Key Observations:
1.Peak Infusion in 2018: The government allocated INR 88,139 crores in 2018 as part of a massive recapitalization plan to address the twin balance sheet problem (bad loans in banks and debt in corporates).
2. COVID-19 Impact: In 2020, the infusion was directed toward supporting the economy during the pandemic.
3. Decline in Recent Years: Capital infusion has reduced as PSBs have shown improved financial health and profitability.
4. Mergers and Reforms: The government has focused on consolidating PSBs, reducing their numbers from 27 in 2017 to 12 in 2024.