The Indian banking sector, regulators, and investors exemplify a remarkable resilience born out of strategic planning and proactive governance. This strength, which has been consistently observed even amidst global financial crises, underscores the robust success story scripted under Prime Minister, Narendra Modi’s government. Compared to the situation merely half a decade ago, the current solidity and reliability of Indian banking bear testimony to the unqualified success that the Modi government has achieved.
The banking sector of India today is a paradigm of strength and security, the seeds of which were sown during PM Modi’s tenure. These monumental changes stem from a series of strategic decisions and robust policies implemented under his watch. Two noteworthy pillars of his strategy were the consolidation of the banking sector and a comprehensive cleanup of banks’ balance sheets.
A significant step was to merge weaker public sector banks with stronger counterparts. This approach led to a contraction in the number of public sector banks from 20 at the end of 2017 to a leaner and more efficient 12. This consolidation not only improved the overall health of the banking sector but also boosted its ability to weather financial crises. In line with these restructuring measures, the government also initiated an extensive cleanup of banks’ balance sheets, writing off a significant number of loans.
It’s crucial to understand that these write-offs were not waivers, but a continuation of the loan recovery process. These measures laid the foundation for the revival of the banking sector, allowing it to breathe, regroup, and emerge stronger. This decisive action to address the sector’s challenges paved the way for the Indian banking system to start afresh, stronger, and more resilient.
Moreover, the government’s approach towards bad loans changed under PM Modi’s leadership. The policies shifted focus from punitive actions to a more pragmatic recovery-centric strategy. The introduction of a compromise settlement system by the Reserve Bank of India (RBI) is a case in point. This approach recognized that recovering a portion of the outstanding dues is better than having assets tied up in legal procedures, thereby unblocking significant funds.
The results of this groundbreaking policy shift are palpable. Gross NPAs have been consistently decreasing since 2018-19. As of March 2023, they stand at a healthier 3.9%. This robust approach has not only strengthened the financial infrastructure but has also restored the faith of citizens and investors in the system.
Another remarkable achievement of the Modi government is the return to profitability of the public sector banks. Profits have touched a whopping Rs 1.05 lakh crore in 2022-23, marking a 57% increase from the previous year. This triumph has been made possible by the government’s relentless commitment to rectify past challenges and build a resilient banking sector that can contribute to the nation’s development and prosperity.
The success story extends beyond numbers and into the realm of financial inclusion. Under Prime Minister Modi’s visionary leadership, an ambitious goal was set to provide every adult Indian with a bank account, including those residing in the most remote rural regions. This bold step towards inclusivity is empowering citizens and driving economic growth, making banking services accessible to the farthest corners of the country.
Private banks are also part of this grand narrative of progress. Significant mergers have taken place, such as the consolidation of HDFC and HDFC Bank, forming the world’s fourth-largest bank by market capitalization. Similarly, IDFC and IDFC First Bank have announced a merger. These mergers are promising indicators of a vibrant and evolving banking sector, ready to compete on the global stage.
The resilience of Indian banks, regulators, and investors, especially when faced with global financial crises, is the defining attribute of the country’s economic strength. This robustness has been built over years of strategic planning and stringent governance under the Modi government. The newfound confidence in the banking sector, paired with the steady progress on various fronts, foretells an auspicious future for the Indian economy.