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ABSTRACT
The Government of India recapitalized the public-sector banks with INR 22,915 crores and INR 2, 11,000 in the year 2016 and 2017 respectively. The Government intends to reduce the NPA level and infuse capital into the public sector banks to meet the liquidity standards. The study has been undertaken to analyze the effect of recapitalization on the performance of Indian public sector banks. The study considered two different events (July 19, 2016 and Oct 24, 2017) and used paired sample t test to analyze the effect of recapitalization on public sector banks. Overall the study found significant difference in Earnings per Share (EPS) and Net non-performing assets (NPA (%)) of selected public sector banks during pre and post announcement of recapitalization. However, the study found no significant difference in performance of Nifty PSU stock index during pre and post recapitalization announcement. Thus, Recapitalization has a greater potential to reduce the NPA of banks and earnings quality of Indian banking sectors. However, the government and RBI must take necessary policy reforms and prevention measures to enhance the profitability ofpublic sectors banks and economic growth of the country.
Keywords: Recapitalization, Public-Sector Banks, Earnings per Share, Net non-performing assets (%), Nifty PSU stock Index and Indian Economy.
INTRODUCTION:
The banking industry is a vast industry which includes segments like the retail banking sector, investment banking, corporate banking, wealth management and asset management. The European market is the most dominant market in the banking industry as they have 43% of the overall market shares. The Asian banking industry is the fastest growing market when compared to the European and American markets for the year between 2006 and 2011. The rise in the per capita income and increased savings has led to the growth of this industry. As on 2017, the Department of Financial services reported that the Indian Banking system has 21 public sector banks, 20 private sector banks, 1574 urban cooperative banks and 56 regional rural banks. Here, the public-sector banks have a control on more than 70 percent of the assets of the banking system.
The banking sector reforms as given by the Government, simply have one main objective, which is to ensure that there is efficiency and soundness in the banking system. These reforms...