Public sector banks (PSBs) have turned the corner and are now safe, stable and healthy enough to tap the market to raise funds to expand their businesses without depending on the government for funds, finance minister Nirmala Sitharaman said on Tuesday.
Replying to a debate on the Banking Laws (Amendment) Bill, 2024, she further said that the amendments, approved by the Lok Sabha on Tuesday, would strengthen governance in the banking sector, besides enhancing consumer and customer convenience concerning nominations and protection of investors.
The Bill was approved by a voice vote in the Lok Sabha and is expected to be approved by the Rajya Sabha later this week.
Speaking in the Lok Sabha, she said: “Highest-ever net profit of Rs 1.41 lakh crore was achieved in 2023-24 and Rs 85,520 crore in the first half of 2024-25. Today, all the public sector banks have turned profitable. As a sector, the profitability of all scheduled commercial banks is the highest in multiple decades, with the return on assets at 1.3% and return on equity at 13.8%.”
After the gross non-performing assets (GNPAs) of PSBs rose to a record 14.5% in March 2016, the government took a slew of measures such as strengthening the banking regulatory framework, amending the recovery laws, enacting comprehensive insolvency and bankruptcy legislation, and establishing a public sector asset reconstruction company. These measures have nursed the credit sector back to sound health, and the GNPA ratio has shrunk to 2.8% as of March 2024, she said.
After both Houses give the Bill its nod, bank account holders can have up to four nominees in their accounts. Sitharaman said depositors will have the option of successive or simultaneous nomination facility, while locker holders will have only successive nominations.
The Bill also sought to enable the transfer of unclaimed dividends, shares, and interest or redemption of bonds to the Investor Education and Protection Fund (IEPF), allowing individuals to claim transfers or refunds from the fund, thus safeguarding investors’ interests. Also, unpaid or unclaimed dividends will be transferred to the unpaid dividend account of the corresponding new bank.
Another proposed change relates to redefining ‘substantial interest’ which restricts loans to firms related to directors of banks. The threshold for a shareholding of a substantial interest will be increased from Rs 5 lakh to Rs 2 crore, reflecting the current value, as the same was last fixed in 1968. Currently, the Banking Regulation Act lays down restrictions on loans and advances to the directors and the firms in which they hold substantial interest.
Sitharaman told lawmakers that the government and the Reserve Bank of India have been extremely cautious since 2014 to ensure banks remain stable. “India’s banking sector is critical to the nation. We can’t let even one bank struggle,” she added.
The FM said the metrics are healthy for PSBs to tap the market and raise funds through bonds and loans to expand business without depending on the government for funds. “The intention is to keep our banks safe, stable, healthy, and after 10 years, you are seeing the outcome,” she said.