Finance Minister Nirmala Sitharaman has asked state-owned banks to come out with innovative and attractive schemes to mobilise deposits from the public as this will enable them to extend more credit.
The minister was addressing MDs and CEOs of public sector banks (PSBs) at a meeting to review the performance of lenders.
In her address, the minister also underlined the need to take strict administrative action against conniving officials who enable fraud and wilful defaults.
During the review meeting, an official statement said, the minister “emphasised the importance of mobilising deposits, urging public sector banks to innovate and offer attractive deposit schemes to enhance their deposit base, which will also enable them to extend more credit”.
Deposit growth has not been keeping pace with credit growth for the last many months, compelling banks to increase their fixed deposit rates to maintain a balance between their assets and liabilities. The gap between credit and deposit growth is still 3-4% despite some banks increasing interest rates.
Recently, some public sector banks–including State Bank of India and Bank of Baroda–have already increased their deposit rates up to 125 basis points to attract funds.
While expressing satisfaction at the improved performance of public sector banks, she cautioned the lenders that bank frauds pose a critical threat to the security of individual customers and financial institutions themselves, which can lead to financial losses and reduced public trust in the banking system.
On the performance front, PSU banks have earned a net profit of about Rs 68,500 crore during the first six months of the current financial year.
The gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) fell to a decade-low of 3.9% at the end of March 2023 and further to 3.2% in September.
She asked banks to concentrate fraud prevention activities on large corporate frauds and wilful defaults as well as on actions that defraud individual customers.
The minister, therefore, instructed the banks to adopt advanced fraud prevention and detection mechanisms and ensure that the customers are further educated about safe banking practices.
On the cases of willful default, she said, they not only strain the banks’ financial health but also hamper the flow of credit in the economy.
Sitharaman instructed PSBs to adopt responsible lending practices across the board and enhance due diligence before loan disbursement, ensure regular monitoring of large loan accounts, and undertake swift and thorough legal action in cases of such default.
She also exhorted banks to take strict administrative action against the conniving bank officials who enable fraud and wilful defaults.
Recognising the effectiveness of legal action against defaulters before courts and tribunals largely depends on effective representation by lawyers and attorneys assisted by bank officials, she called for a performance review of counsel representing public sector banks to ensure better legal outcomes.
During the meeting, the progress on the acquisition of accounts by the National Asset Reconstruction Company Ltd (NARCL) was also deliberated.
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The finance minister directed that the acquisition of stressed accounts by NARCL needs to improve further, and necessary efforts must be made in this direction.
It was advised that NARCL and banks should hold regular meetings to expedite the onboarding of stressed accounts.
She also directed banks to undertake consumer education measures for protection from malicious fraud calls.
Banks were asked to make efforts for timely identification of accounts as fraud and their subsequent investigation. Banks were also advised to put more effort into recovery from accounts declared as fraud and willful default.
Sitharaman asked banks to monitor the early warning signals to check potential frauds.
During the meeting, the preparedness of all the PSBs in addressing cyber security risks was reviewed by the minister, and banks were directed to ensure the complete privacy of customer data.
She pointed out that issues of cybersecurity should be seen from a system perspective as a small vulnerability can be used by nefarious elements to create system-wide risks.
Stressing the need to adopt proactive cybersecurity measures and implement stringent security protocols to protect sensitive financial information and systems from cyberattacks, she asked banks to adapt to the evolving digital landscape, ensuring that the integrity of domestic financial systems remains uncompromised.
Sitharaman also emphasised the importance of collaboration and mutual learning among the PSBs and coordination between banks, security agencies, regulatory bodies and technology experts to create a more resilient financial ecosystem against potential cybersecurity threats.
The meeting was also attended by Minister of State for Finance Bhagwat Kishanrao Karad, Vivek Joshi, Secretary, the Department of Financial Services, and other senior officials.
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