Finance Minister Nirmala Sitharaman chaired a meeting on Saturday to review the performance of public sector banks (PSBs) on various financial health parameters, and the resilience of PSBs in light of the current global financial scenario emanating from the failure of some international banks in the U.S. and Europe.
During the review meeting, an open discussion was held with the MDs and CEOs of PSBs on the global scenario comprising the failure of the Silicon Valley Bank (SVB) and the Signature Bank (SB) along with issues leading to the crisis in Credit Suisse. Sitharaman reviewed the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives.
On March 12, 2023, U.S. regulators closed Signature Bank, just two days after shutting down Silicon Valley Bank, following mass withdrawals of customer deposits. However, according to Moody's, the impact will be limited for most rated financial institutions in Asia-Pacific (APAC) because of structural factors. Most APAC institutions are not exposed to the failed U.S. banks, and only a handful of institutions have immaterial exposures, the ratings agency said earlier this month.
The Finance Minister emphasised on preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base.
Sitharaman underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures. The FM also exhorted PSBs to use this opportunity to frame detailed crisis management and communication strategies.
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. 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.
After detailed deliberations, the Finance Minister advised PSBs to remain vigilant about the interest rate risks and regularly undertake stress tests. Sitharaman 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).
During the course of discussion on the general banking scenario prevailing in the country, the Finance Minister advised PSBs to take focused steps to attract the deposits given the steps taken by the government to reduce the tax arbitrage in some debt instruments.
Sitharaman advised PSBs to pivot their strengthened financial position to support credit needs of the growing economy, 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 and enhance business presence in new & emerging areas like One District One Product (ODOP) among others.