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FM tells PSBs to diversify deposit, asset base amid global financial stress

New Delhi, March 25, 2023 

Use the crisis to frame detailed crisis management strategies, FM to bankers

Finance Minister Nirmala Sitharaman on Saturday emphasised Public Sector Banks (PSBs) to be prepared amid global financial stress and adhere to the regulatory framework by focusing on risk management, diversification of deposits and asset base.

The meeting was meant to review the performance of PSBs on various financial health parameters and the resilience of PSBs in the backdrop of bank failures in the United States, and UBS’ acquisition of crisis-hit Credit Suisse.

“PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures. They should use this opportunity to frame detailed crisis management and communication strategies,” the Minister said.

Silicon Valley Bank (SVB) was instrumental in financing start-ups and technology players. However, it faced stress after incurring huge losses on its holdings of US bonds, following the most-aggressive monetary tightening cycle by the Federal Reserve Bank in around four decades.

The meeting was also attended by Union Minister of State for Finance, Bhagwat Kishanrao Karad and Vivek Joshi, Secretary, Department of Financial Services (DFS).

A senior banker aware of bankers' interaction with the finance ministry said the message was to be careful about developments like the crisis in the case of the Swiss banking entity Credit Suisse, which had a global impact.

“Sitharaman instructed banks to keep a close watch on unfolding developments in the backdrop of the shutting of banks in the USA like Silicon Valley Bank (SVB), despite the Indian banking system having very little exposure to it,” the banker said.

Sitharaman also reviewed the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives.

During the meeting, Sitharaman was also informed by the PSBs that they are vigilant of developments in the global banking sector and are taking all possible steps to safeguard themselves from any potential financial shock. “All the major financial parameters indicate stable and resilient PSBs with robust financial health,” the official statement, following the meeting, said.

The FM advised PSBs to remain vigilant about the interest rate risks and regularly undertake stress tests. She also highlighted that PSBs must leverage the full potential of branches opened in International Financial Services Centres in GIFT City Gujarat to identify international opportunities, including prospects related to Persons of Indian Origin (PIOs).

The Finance Minister also advised PSBs to attract deposits given the steps taken by the Government to reduce the tax arbitrage in some debt instruments and pivot their strengthened financial position to support the credit needs of the growing economy

“PSBs should also focus on credit outreach in States where the credit offtake is lower than the national average, particularly in North-East and Eastern parts of the country; Enhance business presence in new & emerging areas like One District One Product (ODOP), e-NAM, and drones; Aim to increase brick & mortar banking presence in border and coastal areas; PSBs should promote the Mahila Samman Bachat Patra announced in the Budget 2023-24 through special drives and campaigns,” she added.

The MD & CEOs of the PSBs apprised the Finance Minister that they follow best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management.

The RBI board met on Friday in Hyderabad and reviewed the impact of current global geopolitical developments along with the economic conditions.

The RBI has recently reiterated the resilience of the Indian banking system, emphasising healthier parameters related to banks’ capital position and asset quality.

[The Business Standard]

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