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Fortifying Finances: Nirmala Sitharaman's Call for Responsible Banking Practices

In a bid to fortify responsible lending practices and bolster the financial health of public sector banks (PSBs), Finance Minister Nirmala Sitharaman issued directives on Saturday, urging enhanced due diligence before loan disbursement. The minister emphasized the need for vigilance to prevent wilful defaults and underlined their detrimental impact on both the banks’ financial well-being and the broader credit flow within the economy.

A finance ministry release highlighted the minister’s instructions to PSBs, calling for a meticulous examination before loan disbursement, continuous monitoring of large loan accounts, and the prompt initiation of legal action in cases of default. Sitharaman further urged banks to take stringent administrative measures against complicit officials who facilitate fraud and wilful defaults.

Recognizing the pivotal role of legal representation, Sitharaman stressed the importance of effective legal action against defaulters. She called for a performance review of counsel representing PSBs, acknowledging that the success of legal proceedings often hinges on robust representation by lawyers assisted by bank officials.

Earlier this month, the finance ministry reported that ten PSBs had transferred non-performing assets (NPAs) exceeding Rs 11,617 crore to the National Asset Reconstruction Company Ltd (NARCL) between January and November 2023. As of November 30, NARCL had successfully recovered Rs 16.64 crore.

Encouraging PSBs to innovate, the minister highlighted the significance of mobilizing deposits and recommended the introduction of attractive deposit schemes. A strengthened deposit base, she noted, would position banks to extend more credit, fostering economic growth.

Sitharaman underscored the imperative of addressing cybersecurity challenges comprehensively. She stressed that vulnerabilities could be exploited by malicious actors to pose system-wide risks, necessitating proactive cybersecurity measures and stringent security protocols. The minister called on banks to adapt to the evolving digital landscape while safeguarding the integrity of domestic financial systems.

Privacy concerns were also raised, with Sitharaman urging banks to prioritize the protection of customer data. Coordination between banks, security agencies, regulatory bodies, and technology experts was deemed essential to create a resilient financial ecosystem against potential cybersecurity threats.

As the financial landscape gears up for Budget 2024-25 and general elections in the coming year, this meeting stands as a crucial review of the performance of PSBs. The first six months of the current financial year witnessed PSBs collectively earning a net profit of approximately Rs 68,500 crore. The balance sheets of banks showed healthy growth during 2022-23, with accelerated deposits and credit expansion.

Notably, the gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) reached a decade-low of 3.9 per cent at the end of March 2023, further decreasing to 3.2 per cent in September. The sustained improvement in asset quality that commenced in 2018-19 persisted during the April-September period of the current fiscal year, reflecting a positive trend in the banking sector.

As the financial sector readies itself for the upcoming challenges and opportunities, Sitharaman’s directives underscore the government’s commitment to fostering responsible lending practices and fortifying the resilience of the banking ecosystem.

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