A Critical Evaluation of Performance of Public Sector Banks Post-Merger

Abstract

The banking sector plays a vital role in supporting the economic development of India, with Public Sector Banks (PSBs) being key institutions for mobilizing financial resources and providing credit to various sectors of the economy. However, around 2015 the financial health of several PSBs deteriorated due to the rising level of Non-Performing Assets (NPAs), which significantly affected their profitability and lending capacity. In response to these challenges, the Government of India and the Reserve Bank of India initiated several reforms, including the Asset Quality Review (AQR), the Indradhanush scheme and the implementation of the 4R strategy—recognition, resolution, recapitalization and reform. Legal and institutional mechanisms such as the Insolvency and Bankruptcy Code (IBC), SARFAESI Act amendments and improved credit monitoring systems were also introduced. Furthermore, the consolidation of Public Sector Banks through mergers in 2020 aimed to strengthen the banking system. These reforms have contributed to improved asset quality, stronger capital adequacy and enhanced operational efficiency in the Indian banking sector.