The Union Finance Minister, Nirmala Sitharaman, recently engaged in a high-level discussion with the leaders of public sector banks (PSBs) focused on enhancing deposit mobilization through targeted campaigns and strengthening customer relations. This meeting, aimed at evaluating banking performance, addressed the issue of deposit growth lagging behind credit expansion.
During the meeting, the Finance Minister acknowledged the improvements in PSBs’ asset quality but urged the banks to leverage opportunities for resolution and recovery through mechanisms like the National Company Law Tribunal (NCLT) and the National Asset Reconstruction Company Ltd (NARCL). She emphasized the need for increasing deposit levels and advised banks to enhance their IT systems, particularly concerning cybersecurity.
A separate session with officials from regional rural banks (RRBs) focused on accelerating the implementation of the ‘one state-one RRB’ initiative. The discussion underscored the importance of bolstering IT infrastructure to protect against cyber threats and improve digital services, especially in areas with limited physical connectivity.
Sitharaman highlighted the necessity for active engagement between bank employees and customers, particularly in rural and semi-urban regions. She encouraged PSBs to form collaborations to share best practices and adapt to the evolving banking landscape. The Finance Minister also stressed the need for a cooperative approach to cybersecurity involving banks, government bodies, regulators, and security agencies.
In terms of Union Budget implications, the Finance Minister directed banks to swiftly implement recent Budget provisions, including a new credit assessment model for Micro, Small, and Medium Enterprises (MSMEs) based on digital and cash flow data. Banks were also instructed to enhance credit distribution for government schemes such as the PM Surya Ghar Muft Bijli Yojana and PM Vishwakarma Yojana, ensuring timely processing and thorough due diligence for beneficiary applications.
For FY24, PSBs have demonstrated progress with a reduction in net non-performing assets (NNPAs) to 0.76%, a capital adequacy ratio of 15.55%, and a net interest margin (NIM) of 3.22%. The sector has achieved its highest net profit of Rs 1.4 trillion and a dividend payout of Rs 27,830 crore.
In a parallel meeting with regional rural banks, the Finance Minister emphasized the need for improved business performance, technological advancements, and support for MSME growth. RRBs reported their highest-ever consolidated net profit of Rs 7,571 crore for FY 2023-24 and the lowest gross non-performing assets (GNPA) ratio in a decade.
Sitharaman urged RRBs to modernize their technology and improve digital services to reach underserved regions. She also highlighted the role of sponsor banks in providing technical support and best practices to RRBs. Additionally, she encouraged active outreach by RRB branches to MSME clusters, particularly in sectors like textiles and handicrafts, to expand loan portfolios.
The Finance Minister also directed SIDBI to support RRBs in exploring co-lending and risk-sharing models and advised both sponsor banks and RRBs to address upcoming challenges by maintaining asset quality, enhancing digital services, and ensuring strong corporate governance.
