Public Sector Banks and their Recapitalization: A Policy Analysis

Public Sector Banks (PSBs) play a pivotal role in India’s financial architecture, accounting for a significant portion of total banking assets and credit disbursement. However, over the past decade, PSBs have been plagued by mounting non-performing assets (NPAs), weak balance sheets, and declining profitability. In response, the Government of India has implemented several rounds of recapitalization to restore the financial health and lending capacity of these banks. This research paper critically analyses the policy framework, objectives, implementation, and impact of PSB recapitalization in India. It traces the evolution of recapitalization policies from post-2008 financial crisis initiatives to the Indradhanush Plan and the subsequent Enhanced Access and Service Excellence (EASE) reforms. Using data from the Ministry of Finance, RBI, and published bank reports, the study evaluates the effectiveness of capital infusion in improving asset quality, credit growth, and operational efficiency. It also examines the interplay between recapitalization and governance reforms, highlighting gaps in structural changes that impede sustainable recovery. The paper argues that while recapitalization has provided short-term relief, it must be accompanied by deeper institutional reforms, including professionalized bank boards, stricter risk management practices, and rationalization of government ownership. The study concludes by offering policy recommendations to align capital support with accountability, transparency, and long-term financial stability. This analysis is intended to contribute to ongoing policy debates on the future of PSBs and the strategic direction of public sector banking in India.