{"id":61690,"date":"2025-12-15T19:18:42","date_gmt":"2025-12-15T13:48:42","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=61690"},"modified":"2025-12-17T11:42:49","modified_gmt":"2025-12-17T06:12:49","slug":"public-sector-bank-reforms","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/15-12-2025\/public-sector-bank-reforms","title":{"rendered":"Push for Public Sector Bank Reforms"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Union Budget 2026\u201327 is expected to unveil a policy direction on the next phase of public sector bank (PSB) reforms based on two parallel tracks\u2014Consolidation 2.0 and calibrated dilution of government ownership.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What are the Reforms?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Consolidation 2.0: <\/strong>The government is considering merging the five smallest PSBs with mid-sized banks with objectives to;\n<ul class=\"wp-block-list\">\n<li>To create banks with sufficient scale, balance sheet strength, and market presence.<\/li>\n\n\n\n<li>To reduce fragmentation in the PSB landscape.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Ownership Reforms:&nbsp;<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>FDI Limit Hike: <\/strong>Increasing the <a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/21-05-2022\/the-foreign-direct-investment-fdi\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/ca\/current-affairs\/21-05-2022\/the-foreign-direct-investment-fdi\">foreign direct investment (FDI)<\/a> limit from 20% to 49%.<\/li>\n\n\n\n<li><strong>Gradual Dilution:<\/strong> Reducing government stake closer to 51% to allow independent capital raising.<\/li>\n\n\n\n<li><strong>Privatization:<\/strong> Renewing proposals to privatize two PSBs.<\/li>\n\n\n\n<li><strong>Operational Autonomy: <\/strong>Granting more freedom to PSB boards.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img data-dominant-color=\"b3dfeb\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"625\" height=\"466\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-94.png\" alt=\"\" class=\"not-transparent wp-image-61691\" style=\"--dominant-color: #b3dfeb; width:468px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-94.png 625w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-94-300x224.png 300w\" sizes=\"auto, (max-width: 625px) 100vw, 625px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>Factors Propelling Performance of India\u2019s Banks<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Asset Quality Review (AQR):<\/strong> Launched in 2015 compelled banks to recognize the true state of their loan books, bringing hidden NPAs to light and strengthening the supervisory framework.<\/li>\n\n\n\n<li><strong>Prompt Corrective Action (PCA)<\/strong> <strong>Framework: <\/strong>Helped restore the health of weak banks, followed by the consolidation of <strong>27 PSBs into 12 by 2020.<\/strong><\/li>\n\n\n\n<li><strong>Insolvency and Bankruptcy Code (IBC):<\/strong> Introduced in 2016, along with complementary out-of-court resolution mechanisms, transformed India\u2019s credit culture and improved recovery processes.<\/li>\n\n\n\n<li><strong>Focused debt resolution: <\/strong>The pecuniary jurisdiction of Debt Recovery Tribunals (DRTs) was raised from <strong>\u20b910 lakh to \u20b920 lakh,<\/strong> enabling them to prioritize higher-value cases and improve recovery efficiency.<\/li>\n\n\n\n<li><strong>RBI\u2019s Prudential Framework for Resolution of Stressed Assets: <\/strong>Promotes early identification, reporting, and time-bound resolution of stressed loans, with incentives for lenders to act swiftly.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Challenges in India\u2019s Banking Industry<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Hidden Stress in Loan Books:<\/strong> Despite lower headline NPAs, recoveries have not fully matched fresh slippages, particularly after pandemic-era restructuring.<\/li>\n\n\n\n<li><strong>Basel III Transition: <\/strong>Large banks have strengthened capital buffers, but smaller banks face challenges in meeting capital adequacy, leverage, and liquidity norms.<\/li>\n\n\n\n<li><strong>Financial Inclusion Constraints: <\/strong>Expansion into rural and underserved areas is constrained by gaps in digital literacy, connectivity, and financial awareness.<\/li>\n\n\n\n<li><strong>Market Concentration Risks: <\/strong>Continued consolidation may reduce competition, potentially affecting customer choice, innovation, and efficiency in the long run.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Balanced Consolidation:<\/strong> Future mergers should prioritise complementary geographies, technology compatibility, and operational synergy rather than mere size expansion.<\/li>\n\n\n\n<li><strong>Deepening Financial Inclusion:<\/strong> Investments in digital infrastructure, financial literacy, and last-mile connectivity are essential to convert access into meaningful usage.<\/li>\n\n\n\n<li><strong>Cybersecurity Management: <\/strong>Enhanced supervisory oversight, stress testing, and cyber resilience frameworks are needed to safeguard financial stability.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.financialexpress.com\/business\/banking-finance\/budget-may-unveil-next-round-of-psb-reforms\/4076672\/\" target=\"_blank\" rel=\"noopener\"><strong>FE<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">The Union Budget 2026\u201327 is expected to unveil a policy direction on the next phase of public sector bank (PSB) reforms based on two parallel tracks\u2014Consolidation 2.0 and calibrated dilution of government ownership.<\/li>\n<p><\/p>\n<p><strong>What are the Reforms?<\/strong><\/p>\n<li class=\"ms-5\">Consolidation 2.0: The government is considering merging the five smallest PSBs with mid-sized banks with objectives to;<\/li>\n<li class=\"ms-5\">To create banks with sufficient scale, balance sheet strength, and market presence.<\/li>\n<li class=\"ms-5\">To reduce fragmentation in the PSB landscape.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/15-12-2025\/public-sector-bank-reforms\" class=\"btn btn-primary btn-sm float-end\">Read More<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-61690","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61690","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=61690"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61690\/revisions"}],"predecessor-version":[{"id":61879,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61690\/revisions\/61879"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=61690"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=61690"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=61690"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}