Focus on deposits, strengthen cybersecurity: FM Sitharaman to banks

The much-awaited meeting between Union Finance Minister Nirmala Sitharaman and heads of public sector banks (PSBs) on Monday revolved around mobilising  deposits through ‘’special drives’’ and stronger bonding with bank customers. The meeting, to review the performance of banks, came against the backdrop of recent concerns that deposits have been growing slower than credit.

While acknowledging the improved asset quality of PSBs, the FM advised banks to optimise the scope of resolution and recovery offered by the National Company Law Tribunal (NCLT) and the National Asset Reconstruction Company Ltd (NARCL). 

The effort should be on ramping up deposits, she’s learnt to have told the banks.

 

The FM also met top officials of regional rural banks in a separate meeting, where banks were asked to expedite one state-one RRB initiative.   Strengthening of banks’ IT systems from a cybersecurity perspective was discussed prominently at the first meeting with PSBs. The focus was on ensuring that banks’ systems are not breached or compromised.

“The finance minister urged banks to ensure their employees actively connect with customers, particularly in rural and semi-urban areas. She also encouraged PSBs to explore collaborations to leverage each other’s strengths by sharing best practices in emerging areas and equipping themselves to keep pace with changes in the banking sector,” according to a finance ministry press statement.

On cybersecurity, the FM is learnt to have emphasised the need for a collaborative approach between banks, government, regulators, and security agencies to implement necessary mitigants against cyber risks. 

Sitharaman told banks that every aspect of the IT system should be reviewed periodically and thoroughly, the statement added.

Union Budget proposals also came up at the meeting.  Sitharaman instructed banks to expeditiously implement the recent Budget announcements, including a new credit assessment model for Micro Small and Medium Enterprises (MSMEs) based on digital footprints and cash flows. 

Banks were told to focus on increasing credit flow to eligible beneficiaries under various government initiatives like the PM Surya Ghar Muft Bijli Yojana and PM Vishwakarma Yojana, the statement said.

A senior bank official, who attended the meeting, said: “We were instructed to expedite the processing of beneficiary applications, while also ensuring all due diligences are completed and requests are cleared.” 
 

Also, banks were asked to ensure compliance with Reserve Bank of India’s guidelines on the handover of security documents after loan closure.

During FY24, PSBs have improved their asset quality, with net non-performing assets (NNPAs) declining to 0.76 per cent. Among other parameters, they have a capital adequacy ratio of 15.55 per cent, a net interest margin (NIM) of 3.22 per cent, and the highest net aggregate profit so far of Rs 1.4 trillion, with a dividend of Rs 27,830 crore to shareholders.

“Improvements across various parameters have also enhanced PSBs' ability to raise capital from the markets,” the statement noted.

At the meeting with regional rural banks, attended by their chairpersons and CEOs of the sponsor banks, the FM instructed all 43 RRBs to focus on improving business performance, upgrading digital technology services, and fostering growth in MSME clusters.
 

RRBs reported their highest-ever consolidated net profit of Rs 7,571 crore for FY 2023-24, with a gross non-performing assets (GNPA) ratio of 6.1 per cent--lowest in 10 years.

RRBs were told to maintain an up-to-date technology stack to stay relevant.
 

The FM noted that digital banking services, such as mobile banking, would be particularly beneficial for regions with challenging physical connectivity, such as the north eastern states and hilly areas.

“The sponsor banks play a crucial role in these efforts by providing technical assistance, sharing best practices, and ensuring that RRBs have access to the necessary resources for success,” said the statement.

Sitharaman spoke about the importance of active outreach by RRB branches located in MSME clusters to ensure credit access for small and micro enterprises in areas such as textiles, handicrafts, wooden furniture, which have significant potential for expanding these banks’ loan portfolios.

The finmin statement said that SIDBI was directed to assist RRBs in exploring co-lending and risk-sharing models.
 

Sitharaman asked sponsor banks and RRBs to recognise the challenges ahead and continue maintaining the asset quality, expanding digital services and ensuring robust corporate governance.