The finance ministry had apprised PSBs of rising competition in deposits segment from the recent merger of HDFC as the housing loan customers will be tapped by HDFC bank for retail banking.
The direction came during a meeting chaired by Finance Minister Nirmala Sitharaman on Thursday where the PSBs were told to take swift actions in fraud and willful defaulters cases and build a strong internal audit framework with a focus on having robust risk management practices.
According to an official present at the meeting, the finance ministry has raised concerns for the PSBs on the declining market share in total advances and CASA. “They were advised to focus on high-yield advances, CASA acquisition and strengthen sources of fee income as the avenues for profitable growth.”
“The PSBs have been told to strengthen their underwriting norms by recalibrating internal credit rating systems and robust risk reporting structure. The banks were advised to leverage analytics to increase coverage of early warning signs which will help in identifying and reaching out to high-risk borrowers, he added.
Sitharaman advised public sector banks (PSBs) to ensure that there is a fair and transparent recognition of Non-Performing Assets (NPAs) as per the extant guidelines of the Reserve Bank of India.
“Banks should periodically review it internally to ensure that there is proper recognition and reporting of the stressed assets,” Sitharaman said at the meeting.
The asset quality of PSBs has improved significantly with gross NPAs at 4.97 per cent and net NPAs at 1.24 per cent in March 2023.
The Finance Ministry noted that all the major financial parameters credit deployment, profitability, asset quality and capital adequacy indicate that the performance of PSBs has significantly improved and they’re adequately capitalised, resilient, and have sound financial health.
“Strengthened by high capital adequacy, clean balance sheets supported by a healthy provision coverage, and improved resilience, PSBs are well positioned to support the credit needs of the productive sectors of the growing economy,”it added.
The Finance Minister advised banks to address associated business model risk with robust risk management practices and have efficient and optimum asset liability management.
Sitharaman noted that while the overall Priority Sector Lending (PSL) has exceeded the mandated target, the PSL targets in the sub-categories should also be met, including, agriculture — particularly the small & marginal farmers, and the micro enterprises.
Under the priority sector lending norms, banks need to lend 40 per cent of the adjusted net bank credit to the sectors such as agriculture, micro and small enterprises, education, housing, renewable energy including advances to weaker sections of the economy.
“Ensure an increase in rural, agriculture and sectoral credit to meet the Priority Sector Lending (PSL) norms and further ensure that the PSL targets are achieved across all sub-categories,” she added.
Sitharaman asked the banks to lead a special campaign to ensure the onboarding of the PMSVANidhi beneficiaries on digital payment systems.
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