In report "Trend and Progress of Banking in India 2018-19", the central bank said that the government has been infusing capital in some PSBs, just enough to meet the regulatory minimum including capital conservation buffer (CCB).
That apart, the deferment of the implementation of the last tranche of CCB till March 31, 2020 has offered some breathing space to these banks, said RBI.
"Going forward, the financial health of PSBs should increasingly be assessed by their ability to access capital markets rather than looking at the government as a recapitaliser of the first and last resort," it said.
The RBI said that PSBs led the recovery in capital ratios for the banking sector in 2018-19. They were recapitalised with Rs 90,000 crore in FY18 and another Rs 1.06 trillion was infused into these banks in FY19. This bolstered their capital position, even as they battled with the overhang of impaired assets.
Private banks (PVBs) and foreign banks (FBs) remained well-capitalised and above the regulatory minimum of 10.875 per cent in March 2019. However, private banks experienced a marginal decline in capital adequacy ratio in 2018-19 after the reclassification of IDBI Bank as a private bank.
According to the report, 2018-19 marked a turnaround taking shape in the financial performance of India's commercial banking sector.
"After seven years of deterioration, the overhang of stressed assets declined and fresh slippages were arrested. With the concomitant reduction in provisioning requirements, bottom lines improved modestly after prolonged stress and the banking sector returned to profitability after a gap of two years in the first half of FY20," it said.
( With inputs from IANS )