India’s public sector banks (PSBs), which form the bedrock of the country's banking industry, are facing rough weather. Slow economic growth, policy gaps and stalled infrastructure projects have led to an alarming build-up of stressed assets over the past three years, and this is hitting bank profitability and capital positions, more so for PSBs than their private sector counterparts.
According to estimates by the country’s central bank, Reserve Bank of India (RBI), while PSBs' share of total banking assets remained nearly the same at more than 70% between financial years 2012-13 and 2014-15, their share of total banking profits dropped from nearly 55% to 42.1% in the same period. Private sector banks, in fact, surpassed PSBs in the share of overall banking sector profits in financial year 2014-15. This trend has continued in financial year 2015-16, with a rising number of PSBs reporting losses.
