Public Sector Banks Reforms: 4R Strategy, EASE Agenda & Key Wins

New Delhi: Preparing for an exam on “Public Sector Bank Reforms” can feel like navigating a complex financial maze. But fear not! This comprehensive yet simple study guide will break down the essential concepts, key committees, and landmark reforms of public sector banks​ in a way that is easy to understand, remember, and recall during your examination.

The Story of India’s Public Sector Banks: A Quick Recap

Imagine a time when banks were mostly in big cities, serving only the wealthy. This was the scenario in India for a long time. To ensure that banking services reached every corner of the country and supported crucial sectors like agriculture and small-scale industries, the government stepped in and nationalized several major private banks in two phases, in 1969 and 1980. These banks, now owned by the government, became our Public Sector Banks (PSBs), now known as the public sector banks​.

For decades, these PSBs played a vital role in India’s economic development. However, over time, they faced several challenges, including:

• Mounting Bad Loans (Non-Performing Assets – NPAs): This is like a shopkeeper who has given out too much credit that isn’t being paid back.
• Low Profitability: Many PSBs were not making enough money to be healthy and competitive.
• Political Interference: Sometimes, lending decisions were influenced by political pressures rather than sound financial judgment.
• Outdated Technology and Practices: They needed to modernize to keep up with the changing world of finance.

To fix these problems and make our PSBs strong and efficient, the government, along with the Reserve Bank of India (RBI), has been introducing reforms since the early 1990s. Let’s understand these reforms step-by-step.

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The Turning Point: The Narasimham Committee Reports (1991 & 1998)

Think of the Narasimham Committee as the “doctors” who first diagnosed the problems with the Indian banking system and prescribed the right medicine. Led by former RBI Governor M. Narasimham, this committee gave two sets of powerful recommendations that changed the face of Indian banking.

Narasimham Committee I (1991): The First Big Shake-up

The Indian economy was in a crisis in 1991, and the banking sector needed urgent attention. The key recommendations were:

• Reduce Government Control: The committee suggested that the government should reduce its stake in PSBs, allowing them to function more independently.
• Clean Up the Books: It introduced the concept of classifying loans as “standard,” “sub-standard,” and “doubtful” to get a clear picture of the bad loan problem.
• Introduce Competition: It recommended allowing the entry of new private and foreign banks to bring in more competition and efficiency.
• Strengthen the RBI: The committee wanted the RBI to be a strong and independent regulator.
• Establish Debt Recovery Tribunals (DRTs): To help banks recover their bad loans faster.

Narasimham Committee II (1998): Continuing the Reforms

This committee reviewed the progress and suggested further measures:

• Stronger Banks through Mergers: It proposed merging strong banks to create a few large, internationally competitive banks.
• Narrow Banking: It suggested that weak banks should not give out risky loans and instead invest in safe government securities.
• Improved Governance: It called for more professionals on the boards of PSBs to improve their management.

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The Modern Blueprint for Reform: The P.J. Nayak Committee (2014)

Fast forward to 2014. While things had improved, PSBs still faced challenges. The P.J. Nayak Committee was set up to provide a modern roadmap for PSB reforms. Its recommendations were bold and forward-looking:

• Reduce Government Stake to Below 50%: This was a game-changing suggestion. The idea was to free PSBs from external pressures and make them more accountable to all shareholders.
• Create a Bank Investment Company (BIC): The committee proposed setting up a holding company (BIC) to which the government would transfer its shares in PSBs. This would distance the government from the day-to-day management of the banks.
• Empower Bank Boards: It recommended that the Bank Boards Bureau (BBB) be established to help in the appointment of top management and directors in a professional and transparent manner.

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The “Indradhanush” Plan (2015): A 7-Point Mantra for Revitalization

Inspired by the seven colors of the rainbow, the government launched the “Indradhanush” plan, a comprehensive framework to revamp PSBs. It’s easy to remember with the acronym A-B-C-D-E-F-G:

• A – Appointments: Bringing in professional management and separating the posts of Chairman and Managing Director.
• B – Bank Board Bureau: To improve the governance of PSBs.
• C – Capitalization: The government committed to infusing capital into PSBs to strengthen their financial health, like giving a much-needed cash injection.
• D – De-stressing: Tackling the NPA problem through various measures.
• E – Empowerment: Giving PSBs more freedom to make their own decisions.
• F – Framework of Accountability: Setting clear performance indicators for banks.
• G – Governance Reforms: Bringing in transparency and professionalism.

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🎯 The 4R Strategy: Fixing India’s Public Sector Banks

A 4-step plan to tackle bad loans (NPAs) and strengthen banks:

Step	What It Means	Key Actions	Results
1. Recognition 🔍	Admit bad loans exist	– Stopped hiding NPAs as “restructured assets”. – Raised Provision Coverage Ratio (PCR) from 46% (2015) to 68.9% (2019).	NPAs rose to ₹3.93L cr (2019), but banks became more transparent.
2. Resolution 💼	Recover money from defaulters	– Used Insolvency Code (IBC) to take control of defaulters’ assets. – Recovered ₹98,493 cr in FY19 (100% growth!).	Record recovery of ₹2.87L cr (2015-19).
3. Recapitalization 💰	Inject funds into banks	– Govt pumped ₹3.14L cr (2015-19) via schemes like Indradhanush.	Boosted banks’ ability to lend.
4. Reforms 🛠️	Improve rules & governance	– Froze accounts of shell companies. – Enacted Fugitive Economic Offenders Act.	Reduced fraud and wilful defaults.

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🌟 EASE Agenda: Transforming PSBs (2018 Onwards)

6 focus areas to make banks customer-friendly, tech-savvy, and efficient:

Focus Area	Key Initiatives	Impact
1. Customer Responsiveness 📱	– Launched psbloansin59minutes.com. – Added UPI, e-KYC, AePS.	Faster loans & digital access for all.
2. Responsible Banking 🛡️	– Stressed Asset Management Verticals (SAMVs) for NPAs. – Better credit checks.	Reduced bad loans and risks.
3. Credit Flow to MSMEs 🏭	– UdyamiMitra portal for MSME loans. – PM Vishwakarma Scheme (₹13,000 cr budget).	Easier loans for small businesses.
4. Financial Inclusion 🌾	– 34 crore Jan Dhan accounts. – 96% villages got banking access.	₹6.28L cr transferred via DBT schemes.
5. Digitalization & Skills 💻	– Mobile banking, Braille ATMs. – Regional language support.	25% faster loan processing (H1FY19).
6. Governance 📊	– EASE Reforms Index (140 metrics). – Separated CEO & Chairman roles.	Transparent, competitive PSBs.

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📈 Key Achievements (2015-2019)

• NPAs Recovery: ₹98,493 cr in FY19 (till Q3).
• Jan Dhan Accounts: 34 crore+ opened.
• Village Banking Access: 96% coverage.
• DBT Transfers: ₹6.28 lakh cr.
• Fugitive Offenders Act: Stopped defaulters fleeing abroad.

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Recent Key Developments and the Road Ahead

The reforms have started showing positive results. The profitability of PSBs has improved significantly, and the mountain of bad loans has started to shrink. Here are some recent trends:

• Mergers of PSBs: Following the Narasimham Committee’s recommendation, the government has merged several PSBs to create larger and stronger banks. For example, the merger of ten PSBs into four in 2020.
• Focus on Digital Banking: PSBs are increasingly adopting technology to improve customer service and efficiency.
• Financial Inclusion: PSBs continue to be at the forefront of the government’s financial inclusion agenda, through schemes like the Pradhan Mantri Jan Dhan Yojana.

The journey of PSB reforms is ongoing. The future focus will be on further enhancing governance, improving risk management, and leveraging technology to make Indian PSBs globally competitive and robust institutions that can effectively fuel India’s economic growth.

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FAQs

Q: What is the 4R Strategy?
A: Recognition, Resolution, Recapitalization, Reforms → Fix NPAs and strengthen banks.

Q: What is the EASE Index?
A: Tracks PSB performance on 140 metrics (e.g., digital adoption, customer satisfaction).

Q: How did IBC help?
A: Allowed banks to take control of defaulters’ assets and recover ₹2.87L cr (2015-19).

Q: How many public sector banks in india​?
A: Following a major consolidation exercise by the Government of India to strengthen the banking sector, there are currently 12 public sector banks (PSBs) in India.

This number was reduced from 27 PSBs before the mergers that took effect from April 1, 2020. The consolidation aimed to create fewer public sector banks list​ , but larger and more robust, banks with a stronger national and international presence.

Here is a list of public sector banks in India​ :

1. State Bank of India
2. Punjab National Bank (Merged with Oriental Bank of Commerce and United Bank of India)
3. Bank of Baroda
4. Canara Bank (Merged with Syndicate Bank)
5. Union Bank of India (Merged with Andhra Bank and Corporation Bank)
6. Indian Bank (Merged with Allahabad Bank)
7. Bank of India
8. Central Bank of India
9. Indian Overseas Bank
10. UCO Bank
11. Bank of Maharashtra
12. Punjab & Sind Bank
    

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Q: Difference between public and private sector banks​
A: Here is a detailed comparison explaining the key difference between public sector bank and private sector bank​ in a simple, easy-to-understand format.

Core Difference: Ownership The single most important difference between public sector and private sector banks​ lies in who owns the majority stake in the bank.

Private Sector Banks: These are owned by private individuals, companies, or a group of shareholders. The government does not have a majority stake.

Public Sector Banks (PSBs): The Government of India is the majority shareholder, holding more than 50% of the stake. This means the government has ultimate control.

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Q: Tell about public sector banks merger​?
A: Recent Mergers of Public Sector Banks in India

Effective Date	Anchor Bank (The larger, surviving bank)	Merged Banks (The banks that were consolidated)
April 1, 2019	Bank of Baroda	• Vijaya Bank• Dena Bank
April 1, 2020	Punjab National Bank	• Oriental Bank of Commerce• United Bank of India
April 1, 2020	Canara Bank	• Syndicate Bank
April 1, 2020	Union Bank of India	• Andhra Bank• Corporation Bank
April 1, 2020	Indian Bank	• Allahabad Bank

Q: Which is the best public sector bank in India​ ?

Key Terms

• NPA: Loans not repaid for 90+ days.
• IBC: Insolvency and Bankruptcy Code.
• DBT: Direct Benefit Transfer.
• SAMVs: Stressed Asset Management Verticals.

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