Several challenges faced by PSBs were discussed during the meeting, including a declining market share in terms of advances and low-cost deposit mobilization.
Finance Minister Nirmala Sitharaman has called upon public sector banks (PSBs) to swiftly address cases of fraud and wilful defaults in order to reduce bad loans and boost growth, according to reliable sources. Over the past six years until the financial year 2021-22, PSBs have written off a staggering Rs 11.17 lakh crore in bad loans. These non-performing assets (NPAs), including those fully provisioned after four years, are removed from the banks' balance sheets through write-offs.
During a recent meeting with the heads of PSBs, the finance minister stressed the importance of implementing robust risk management practices and effectively mitigating cybersecurity risks. The meeting also emphasized the need for banks to establish a strong internal audit framework and adhere to internal policies.
Several challenges faced by PSBs were discussed during the meeting, including a declining market share in terms of advances and low-cost deposit mobilization. Additionally, concerns were raised about increased competition for deposits following the merger of HDFC Ltd with HDFC Bank. As a result of this merger, HDFC Bank will now tap into HDFC Ltd's housing loan customers for retail banking services. Another area of concern addressed was the pressure on PSBs' net interest margin due to the prevailing high-interest rate regime. Banks were encouraged to focus on high-yield advances with careful risk management and to increase fee income.
To bolster the resolution of stressed assets in the banking system, the Reserve Bank of India (RBI) recently issued a framework on compromise settlements and technical write-offs. This framework clarifies the definition of technical write-offs and provides general guidance on the process to be followed by regulated entities when executing technical write-offs. It also outlines essential aspects related to board oversight, delegation of power, reporting mechanisms, and cooling periods for regular cases of compromise settlements. However, penal measures will still be applicable to borrowers classified as fraud or wilful defaulters in cases where banks enter into compromise settlements with such borrowers.
The finance minister's call for swift action in addressing fraud and wilful defaults reflects the government's commitment to reducing bad loans and strengthening the banking sector. The emphasis on risk management practices and cybersecurity is crucial in today's digital age, where financial institutions face increasing threats. PSBs will need to implement these recommendations effectively to regain market share, attract deposits, and navigate the challenges posed by the evolving banking landscape.
The framework introduced by the RBI offers much-needed guidance and clarity to regulated entities, enabling them to handle stressed assets more efficiently. By adopting these measures, PSBs can streamline their operations, improve their asset quality, and contribute to a healthier and more robust banking system.
As the government and banking sector work together to address these challenges, the finance minister's directives aim to lay the foundation for a more resilient and growth-oriented banking sector in India.
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| Finance Minister Urges Public Sector Banks to Tackle Fraud and Bad Loans, Emphasizes Risk Management |
Finance Minister Nirmala Sitharaman has called upon public sector banks (PSBs) to swiftly address cases of fraud and wilful defaults in order to reduce bad loans and boost growth, according to reliable sources. Over the past six years until the financial year 2021-22, PSBs have written off a staggering Rs 11.17 lakh crore in bad loans. These non-performing assets (NPAs), including those fully provisioned after four years, are removed from the banks' balance sheets through write-offs.
During a recent meeting with the heads of PSBs, the finance minister stressed the importance of implementing robust risk management practices and effectively mitigating cybersecurity risks. The meeting also emphasized the need for banks to establish a strong internal audit framework and adhere to internal policies.
Several challenges faced by PSBs were discussed during the meeting, including a declining market share in terms of advances and low-cost deposit mobilization. Additionally, concerns were raised about increased competition for deposits following the merger of HDFC Ltd with HDFC Bank. As a result of this merger, HDFC Bank will now tap into HDFC Ltd's housing loan customers for retail banking services. Another area of concern addressed was the pressure on PSBs' net interest margin due to the prevailing high-interest rate regime. Banks were encouraged to focus on high-yield advances with careful risk management and to increase fee income.
To bolster the resolution of stressed assets in the banking system, the Reserve Bank of India (RBI) recently issued a framework on compromise settlements and technical write-offs. This framework clarifies the definition of technical write-offs and provides general guidance on the process to be followed by regulated entities when executing technical write-offs. It also outlines essential aspects related to board oversight, delegation of power, reporting mechanisms, and cooling periods for regular cases of compromise settlements. However, penal measures will still be applicable to borrowers classified as fraud or wilful defaulters in cases where banks enter into compromise settlements with such borrowers.
The finance minister's call for swift action in addressing fraud and wilful defaults reflects the government's commitment to reducing bad loans and strengthening the banking sector. The emphasis on risk management practices and cybersecurity is crucial in today's digital age, where financial institutions face increasing threats. PSBs will need to implement these recommendations effectively to regain market share, attract deposits, and navigate the challenges posed by the evolving banking landscape.
The framework introduced by the RBI offers much-needed guidance and clarity to regulated entities, enabling them to handle stressed assets more efficiently. By adopting these measures, PSBs can streamline their operations, improve their asset quality, and contribute to a healthier and more robust banking system.
As the government and banking sector work together to address these challenges, the finance minister's directives aim to lay the foundation for a more resilient and growth-oriented banking sector in India.
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