Govt White Paper underlines banking sector growth to ‘twin balance sheet advantage’

Government on banking sector growth: Tabling a White Paper in Parliament on Thursday, that compares the state of India’s economy with that of the UPA-led decade, the Government underlines the banking sector growth driven by the attempts to strengthen the bank balance sheets, mergers, and recapitalisation of banks. 

In the White Paper government shared that the Gross advances by public sector banks were only 6.6 lakh crore in March 2004 and in March 2012, it was 39.0 lakh crore.  Today a decline in the ratio of the GrossNon-Performing Assets as a proportion of Gross advances to a multi-year low of 3.2 per cent in September 2023. 

“When the Vajpayee-led NDA government took office, the Gross Non-Performing Assets (GNPA) ratio in Public Sector banks was 16.0 per cent, and when they left office, it was 7.8 per cent. In September 2013, this ratio, including restructured loans, had climbed to 12.3 per cent largely because of political interference by the UPA government in the commercial lending decisions of public sector banks. Worse, even that high percentage of bad debts was an underestimate,” the White Paper states. 

The White Paper also accuses UPA of intervening in banking operations to induce reckless lending with undertones of favouritism, etc. 

Overcoming challenges 

In the last 10 years, the government has revitalised the stagnant financial sector and overhauled the credit ecosystem within the economy, bringing about significant improvements. 

Implementation of the Insolvency and Bankruptcy Code (IBC) and measures implemented by the RBI and the government to strengthen the balance sheets 28 of the banking sector (such as the Asset Quality Review, Prompt Corrective Action Framework, merger and recapitalisation of banks) led to a decline in the ratio of the GrossNon-Performing Assets as a proportion of Gross advances to a multi-year low of 3.2 per cent in September 2023. The restored profitability of public sector banks then and now tells its own story of rescue, recovery and rejuvenation, the White Paper states. 

Previously, the economy grappled with what was termed a 'twin balance sheet problem'. However, the economy has now shifted towards possessing a 'twin balance sheet advantage' for both companies and the banking sector. 

This shift signifies ample capacity for companies to scale up investments and for the banking sector to extend credit, thereby fostering opportunities for economic growth and employment generation.