Finance minister Niramala Sitharaman will meet managing directors of public sector banks (PSBs) on Saturday to review performance against the backdrop of the failure of a few banks in the US and the liquidity crisis faced by Credit Suisse.
The meeting is going to take stock of the progress made by banks in achieving targets set for the various government schemes, including Kisan Credit Card (KCC), Stand-Up India, Pradhan Mantri Mudra Yojana (PMMY), and emergency credit line guarantee scheme (ECLGS) to help businesses affected by COVID-19, according to sources.
This is the first full review meeting after the presentation of Budget 2023-24 and banks would be asked to focus on the areas highlighted by the Budget, including credit flow to productive sectors.
The finance minister will review financial inclusion, credit growth, asset quality, and capital raising and business growth plan of banks for the next financial year, the sources said, adding non-performing assets (NPAs) of Rs 100 crore and the recovery status would also be discussed.
The meeting comes against the backdrop of global concern over the failure of banks due to aggressive monetary tightening.
The US Fed on Wednesday hiked interest rates by 25 basis points to tame high inflation despite the banking crisis. To fight the persistent hot inflation, the Fed has so far increased rates from zero to 4.75 to 5 per cent, all in just one year.
Taking a cue, both, the Bank of England and the European Central Bank (ECB) have also raised their benchmark interest rates.
Meanwhile, policymakers and experts have said that the Indian banking system is in good shape and can handle the situation caused due to monetary tightening.
Various reforms undertaken by the government have resulted in significant improvement in the asset quality of public sector banks, with the gross NPA ratio declining from the peak of 14.6 per cent in March 2018 to 5.53 per cent in December 2022.
All PSBs are in profit with an aggregate profit of Rs 66,543 crore in 2021-22, and that further increased to Rs 70,167 crore in the first nine months of the current financial year.
At the same time, resilience has increased with the provision coverage ratio of PSBs rising from 46 per cent to 89.9 per cent in December 2022. The capital adequacy ratio of PSBs improved significantly from 11.5 per cent in March 2015 to 14.5 per cent in December 2022.
The total market capitalisation of PSBs (excluding IDBI Bank, which was categorised as a private sector bank in January 2019) increased from Rs 4.52 lakh crore in March 2018 to Rs 10.63 lakh crore in December 2022, he said.
The government implemented a comprehensive 4R strategy of Recognising NPAs transparently, Resolution and recovery, Recapitalising PSBs, and Reforms in the financial ecosystem.
Major banking reforms undertaken by the government over the last eight years ensured credit discipline, responsible lending and improved governance, besides the adoption of technology, amalgamation of banks, and maintaining general confidence of bankers.