What is 4 R strategy ?

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May 13, 2024

What is 4 R strategy ?

Why in News?  Government banks have earned record profits so far in the financial year 2023-24. During this period, the total profit of 12 banks increased to Rs 1,42,129 crore. These banks had earned a record profit of Rs 1.05 lakh crore in 2022-23. In 2021-22 this figure was Rs 66,540 crore. During this period, there was a decline in the profits of only three banks, UCO, Indian Overseas and Punjab and Sindh Bank.

The profits of banks have increased due to the ‘4 R’ strategy of the government. This includes transparent identification of NPAs, resolution and recovery, recapitalization and financial system reforms. Under this strategy, the government has infused a total of Rs 3.11 lakh crore capital into banks between 2016-17 and 2020-21. This has helped the banks.

The second reason is continuous recovery and reduction in bad loans i.e. NPA. The effect of this was that during the financial year 2023-24, the net NPA of all banks came down to below the level of 1.70 percent. Bank of Maharashtra’s NPA was the highest at 0.20 percent, while Punjab and Sindh Bank’s NPA was the highest at 1.63 percent.

What is ‘4 R’ strategy?

  •  The 4 R  in Indian banking refer to a strategy implemented by the government to address bad loans (Non-Performing Assets or NPAs) in Public Sector Banks (PSBs). It’s a framework to clean up bank finances and improve their health.

The 4 R:

Recognition (R-1): This involves transparently acknowledging the true extent of bad loans on the banks’ books. Previously, some NPAs might have been hidden or understated.

Resolution (R-2): This focuses on finding solutions to recover the money owed on bad loans. It involves methods like restructuring debt, selling off assets of the borrower, or taking legal action.

Recapitalization (R-3): This step involves infusing fresh capital into the PSBs to strengthen their financial position. This helps them absorb losses from bad loans and improve their lending capacity.

Reforms (R-4): This focuses on long-term improvements in the banking system to prevent future bad loans. It includes stricter loan approval processes, better risk management practices, and governance reforms in PSBs.

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