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Finance Minister Nirmala Sitaraman urged the nation’s Public Sector Banks (PSBs) on Saturday to keep an eye on international developments and take the necessary precautions to safeguard themselves from any potential financial shocks in the midst of the collapse of banks in the US and Europe.
The Union finance minister chaired a meeting to review the performance of Public Sector banks (PSBs) on various financial, efficiency, and health parameters and their pliability in the ongoing scenario of Global markets being rattled by a string of bank failures. According to PTI, she has advised the banks to conduct stress tests frequently and to stay alert to interest rate concerns.
Wake Up Call
On Saturday, the Lok Sabha also passed the Finance Bill, 2023 with some amendments. A key change in the bill was under debt mutual funds.
Debt mutual funds invest around 35%of their proceeds in equity shares of domestic firms. They will no longer profit from long-term capital gains under the new legislation. This move will likely make bank deposits more lucrative further, and the banks would also have the additional advantage of fixed returns.
Also, there is now more competition among banks to draw in deposits in order to close the widening gap between the expansion of credit and deposits and the decreased market liquidity.
This has been an outcome of the series of interest rate hikes by RBI. On one hand, despite the rise in interest rates, bank credit has remained robust and grown by 15.7% this year. Deposit growth, on the other hand, has lagged and risen by 10.3%in the same period.
Key Highlights Of The Meeting
The main focus of the meeting was an emphasis on preparedness in the wake of global developments.
1. FM Nirmala Sitaraman spoke about the short- and long-term effects of the current and impending external global financial turmoil during the meeting.
The MDs and CEOs of the PSBs informed the FM that they uphold regulatory standards, adhere to best practices in corporate governance, ensure prudent liquidity management, and keep a strong focus on asset liability and risk management.
2. There was also an open discussion held on the global scenario consisting of the failure of the silicon valley bank and signature bank, along with the issues leading to the crisis in credit suisse.
Bhagwat Karad, the minister of state for finance, and Vivek Joshi, the secretary of financial services, among other top officials, were present at the meeting.
3. FM Sitharaman emphasized that PSBs must carefully examine their business models to spot stress spots, such as concentration risks and adverse exposures, and she enjoined PSBs to take advantage of this chance to develop comprehensive crisis management and communication plans.
The minister highlighted that in order to identify opportunities abroad, especially those involving Persons of Indian Origin, PSBs must make the most of their branches that have been built in International Financial Services Centers in GIFT City Gujarat (PIOs).
4. The minister urged banks to prioritize credit outreach in states where credit offtake is lower than the national average, particularly in the northeast and eastern regions of the nation, and to strengthen business presence in advanced industries like drones, e-NAM, and One District One Product (ODOP).
She advised PSBs to focus on boosting brick-and-mortar banking presence in border and coastal areas while also promoting the Mahila Samman Bachat Patra, which was announced in the Budget.
The Road Ahead- Future Developments
Officials from the Reserve Bank of India and the Finance Ministry have emphasized time and again how well-protected and insulated the nation’s financial sector is from recent global developments, but it is difficult to entirely eliminate dangers. Two bank failures, a stressed sale of Credit Suisse to UBS, or growing worries about Deutsche Bank are all possible causes of a worldwide contagion effect that might eventually affect Indian lenders.
However, with the various reforms measures undertaken, Indian lenders are on a much stronger footing.