A similar divergence was seen across loss assets, too. Against 8.16 times increase in loss assets of SCBs—from ₹7,400 crore in FY05 to ₹60,411 crore in FY18, foreign banks’ loss assets increased 2.73 times—from ₹600 crore to ₹1,635 crore. Private banks saw loss assets increasing 6.05 times—from ₹900 crore to ₹5,446 crore. The number for PSBs, in contrast, increased 9.03 times—from ₹5,900 crore in FY05 to ₹53,265 crore in FY18.

PSBs have the larger share of banking assets, and hence their share of the problems is naturally higher. But the proportion in which their problems have increased is a matter of concern. And this, historically, has been a concern.

In November 2013, at a banking conclave, K.C. Chakrabarty, then a deputy governor at the Reserve Bank of India, had highlighted that after the onset of the global financial crisis in 2008, NPA ratios had started increasing, indicating a marked deterioration in the asset quality of the banking system.

Chakrabarty had pointed out that initially the NPA levels of PSBs and other bank groups displayed a divergent trend. While the gross NPA (GNPA) ratio for PSBs stood at 21% in 1994, for new private sector banks and foreign banks, it was between 1% and 2%. Till 2003, while the GNPA ratio for PSBs declined gradually, it increased for other bank groups. Then, during 2003-06, NPA ratios across all bank groups showed a secular declining trend.

In his speech, Chakrabarty pointed out that during 2007-09, the NPA ratios decoupled—the GNPA ratio of new private sector banks and foreign banks increased sharply while they continued to decline in the case of PSBs. In fact, foreign banks witnessed the highest spurt in NPAs during 2009. “The trend, however, reversed after 2009, when NPAs rose significantly for PSBs, while it declined for other bank groups,” Chakrabarty had said. “This divergent trend clearly indicates that the ability to manage asset quality across banks varies markedly and, in the post-crisis years in particular, the concerns on asset quality are largely confined to the PSBs.”

Chakrabarty had further highlighted that the new private sector banks and foreign banks recorded higher slippage ratio (gross and net) immediately after the crisis but were able to arrest the increasing trend in slippages by focussing on credit risk management, including exit strategies. But the same ratios had (then) sharply risen for PSBs. “This indicates that new private sector banks and foreign banks were able to manage their asset quality better than PSBs, as they were quick in identifying NPAs, while PSBs resorted to retrospective restructuring to report lower NPAs initially,” Chakrabarty had pointed out. “This practice eventually tipped the scale against the PSBs,” he had said. According to Chakrabarty, the weaknesses in credit and recovery administration that existed prior to the crisis, especially in the case of PSBs, were not dealt with in a timely manner. “The crisis only exacerbated the problem,” he had said.

While regulations have continuously become stringent through the years following 2013, PSBs continue to garner a disproportionally higher share of problems. The higher NPAs call for higher provisioning, which leads to lower profits in the case of a few PSBs, and consecutive losses for a majority of these banks.

In more ways than one, Getty’s views on nationalised industries being notorious for operating at a loss are strongly personified by India’s PSBs.

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Budget 2024: Gross NPAs as % of advances falling

A tale of India’s loss-heavy banks