Finance and Corporate Affairs Minister Nirmala Sitharaman on Monday advised Public Sector Banks (PSBs) to make concerted efforts to garner deposits by conducting special drives.

This advice is crucial as PSBs are experiencing a tricky situation of slower deposit growth compared to the sharp increase in loan advances in the recent years.

PSBs must also expeditiously implement a budget proposal of introducing a new credit assessment model for MSMEs based on digital footprints and cash-flows, Sitharaman said at a Review meeting of PSBs and Regional Rural Banks (RRBs) in the capital.

Finance Minister, who chaired the review meeting, also instructed banks to focus on further increasing credit flow to eligible beneficiaries under initiatives like PM Surya Ghar Muft Bijli Yojana and PM Vishwakarma Yojana.

Special Drive on Desposits

On deposit mobilisation, Sitharaman noted that while the credit growth has picked up, mobilisation of deposits could further be improved to fund the credit growth sustainably. Special drives are needed to garner deposits, she added. 

Sitharaman also advised PSBs to have better relationships with their customers for efficient customer service delivery. 

She urged Banks to ensure that employees reach out to connect with their customers, especially in Rural and Semi-urban areas. 

Various financial parameters such as Deposit Mobilisation, Digital Payments and Cyber Security, Implementation of new credit products/ schemes and Access to Credit under Financial Inclusion were discussed in detail during the review meeting.

Stellar Show

The review meeting took note of the stellar financial performance of PSBs in 2023-24, recording the highest-ever aggregate net profit of ₹ 1.45 lakh crore. PSBs have declared a dividend of ₹27,830 crore to shareholders. While net NPA declined to 0.76 per cent, the capital adequacy ratio of the banks improved to 15.55 per cent.

Improvements over various parameters have also enhanced the ability of PSBs to raise capital from the markets, Sitharaman said.

Cybersecurity

Sitharaman advised that issues of cyber security should be seen from a systemic perspective and emphasised that a collaborative approach between banks, Government, regulators and security agencies is needed to put in place as necessary mitigants against cyber-risks.

Finance Minister also urged PSBs to ensure that every aspect of the IT system be reviewed periodically and thoroughly from the cyber security angle to ensure that the security of the bank systems is not breached or compromised.

The meeting was also attended by Vivek Joshi, Secretary, M. Nagaraju, Secretary-Designate, Department of Financial Services (DFS); Heads of PSBs besides senior officials of DFS.

Stressed Assets

While acknowledging the efforts made by the banks to improve the asset quality, Sitharaman advised them to optimise the scope of resolution and recovery offered by National Company Law Tribunal (NCLT) and National Asset Reconstruction Company Limited (NARCL).

Sitharaman also advised the banks to ensure compliance with the Reserve Bank of India’s guidelines on the handover of security documents after closure of the loans and directed that there should not be any delay in handing over the documents to the customer.

Regional Rural Banks

At the separate review meeting on RRBs, Sitharaman is understood to have advised RRBs to focus on ramping up their IT infrastructure. They were also asked to enhance their credit flows to MSMEs.  SBI Chairman Dinesh Kumar Khara is said to have proposed the merger of RRBs in North East India for better administration.

However, no decision was taken on this front, sources added. India currently has 43 RRBs and each of them were represented at today’s review meeting. RRBs were also advised to focus on improving their financial metrics and build on the strong performance seen in recent years. RRBs had in 2023-24 recorded net profit of over ₹7,500 crore, highest ever till date.

Given the crucial role of RRBs in supporting the rural economy, the Finance Minister urged RRBs – with the active support of their Sponsor Banks – to also put greater thrust on the clear identification of beneficiaries while sanctioning loans under various schemes such as PM Vishwakarma and PM Surya Ghar Muft Bijli Yojana. 

RRBs were also directed to increase their share in ground-level agriculture credit disbursement.

Sitharaman exhorted all the RRBs to devise suitable MSME products aligning with their cluster activities and leverage personal and local connect to increase banking penetration.  SIDBI was directed to assist RRBs in exploring co-lending/risk-sharing models and extending refinance for the MSME portfolio. 

Sitharaman also asked Sponsor Banks and RRBs to recognise the challenges that lie ahead and to continue focusing on maintaining asset quality, expanding digital services, and ensuring robust corporate governance.