The social media is flooded with posts on the closure of nine commercial banks after a mischievous poster made the announcement through a platform. The news spread like wild fire with many people in total panic. The September 25th post even mentioned the names of the banks that were supposed to shut down. RBI immediately denied this.
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The Finance Minister in her recent budget speech announced various reforms that would further strengthen the hold of public sector banks and other commercial banks in the country.
The cause was strongly backed by the Finance Secretary, Mr Rajeev Kumar as well, stating that the government was highly inclined towards strengthening the PSBs and had planned a huge capital inflow for the same.
The rumors spread after RBI imposed withdrawal restrictions on the Punjab & Maharashtra Cooperative Bank leaving thousands of customers stranded and without money. The idea was spread as a trailing effect on the announcement made by the government regarding the merger of 10 public sector banks into 4 giants which were:
These mergers were perceived to be quick and with immediate effect after the merger of Vijaya Banka and Dena Bank with Bank of Baroda and IDBI bank with LIC turned out to be hits.
The Finance Minister Nirmala Sitharaman in her 2 hour 40 minute long budget speech introduced several reforms and changes that were sure to leave her mark as a learned finance minister. Understanding that banks serve as the backbone of any economy, the Finance Minister applauded its importance by infusing capital worth Rs 3.5 Crores to public sector banks in her recent budget announcement.
Being the 5th largest economy in the world, India is still facing an economic slowdown and the finance minister well-acknowledged the fact by her efforts to strengthen the economy and banks.
Following are the implications of the recent budget announcement on Banks and NBFCs:
The government has tried hard to propel growth in the banking sector. With the credit growth rate hitting an all-time low in the last 58 years and touching 6.5% to 7%, the finance minister is hell bent on reviving this to the last year’s 13.3%.
The government has introduced various reforms like a repo rate cut, outreach programs for bank loans, Rs 70,000 crores infused into recapitalization and so on to boost the credit growth in the system. The experts and market watchers, however, believe that the need of the hour is to restart bank lending programs to boost credit inflow and hence the growth of the economy.
The NBFC sector is looking forward to a boost after the fiasco involving IL&FS. This massive firm was in default of debt of over Rs 91,000 crores and was saddled with a massive liquidity crunch. DHFL also faced a downgrade by rating agencies on debt. A probe was ordered by the Serious Fraud Investigation Office (SFIO) on improper advances on related party transactions.
Budget 2020 was a big positive for NBFCs. There was a proposal to extend partial credit guarantee scheme for NBFCs. The MSME sector would be the ultimate beneficiary of all these changes.
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The Finance Minister has pledged in her announcement to introduce better transparency in the banking system; that would reassure faith in customers and tackle the risk-aversion of banks from investing in businesses with not so clear prospects.
The social media is definitely a platform to communicate one’s thoughts and ideas but as a responsible citizen of this growing nation, it is our duty to ensure facts and details before posting any news. One action of irresponsibility can affect hundreds of people leaving them stressed and stranded. The above discussed post is a perfect example of one such irresponsible post which caused despair among several Indians and left a dent in the transparency of the banking system.
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