‘Give more loans to small, micro firms’
New Delhi: Finance Minister Nirmala Sitharaman, at a review meeting held on Monday, asked the chiefs of public sector banks to accelerate the growth rate of their deposits to match the quicker pace at which the credit is growing.
The growth rate of deposits is 3 to 4 per cent slower than the pace at which credit is growing in recent months which is seen as posing a risk of asset-liability mismatch in the banking system.
According to sources, the Finance Minister reviewed the financial performance of banks and progress made in the implementation of various social welfare schemes of the government such as the PM Vishwakarma Yojana, PM Awas Yojana, PM Surya Ghar Muft Bijli Yojana.
FM Sitharaman also took stock of the status of non-performing assets of the banks and the efforts made in the recovery process.
The Finance Minister is keen that banks raise more deposits from the public and step up lending for government schemes announced in Budget 2024-25.
Addressing the media after a post-budget meeting with the RBI’s Central Board of Directors earlier this month, the Finance Minister said that banks must focus on the core business of raising deposits and lending.
She pointed out that the RBI has given enough liberty to banks on fixing interest rates and they should come out with innovative portfolios to attract deposits so that more funds are available for lending to spur economic growth and create more jobs.
She said while investors were increasingly turning to the stock markets, banks also needed to come up with schemes to attract more deposits.
The finance minister further stated that instead of focusing only on big deposits, banks with their vast network of branches must focus on raising smaller deposits which come in “trickles” but are the “bread and butter” of the banking system.
Finance Minister Nirmala Sitharaman, at a meeting held here on Monday, told the chiefs of Regional Rural Banks (RRBs) to adopt a policy of active outreach in MSME clusters to ensure credit is extended to small and micro enterprises.
The meeting was attended by the Secretary-Designate, Department of Financial Services (DFS and other senior officials from the ministry, representatives of the RBI, the SIDBI, the NABARD, Chairpersons of RRBs and CEOs of sponsor banks.
The meeting focused on business performance, upgrading digital technology services, and fostering business growth in MSME clusters which have a huge potential for creating jobs.
The Finance Minister emphasised the need for an active outreach by the RRB branches located in MSME clusters to ensure credit to small and micro enterprises in areas like textile, handicrafts, wooden furniture, clay pots, jute handicrafts, leather, food processing, dairy farming, packing materials etc. that hold immense potential for increasing the loan portfolio for RRBs.
She exhorted all the RRBs to devise suitable MSME products aligning with their cluster activities and leverage personal and local connections to increase banking penetration.
The SIDBI was directed to assist RRBs in exploring co-lending/risk-sharing models and extending refinance for the MSME portfolio. During a presentation in the review meeting, Sitharaman appreciated the RRBs for the improvement in their financial performance and technology upgrades ever since the regular review was initiated in 2022 and also urged the rural banks to continue the momentum in the future.
RRBs have recorded the highest-ever consolidated net profit of Rs 7,571 crore in FY 2023-24.
The Gross Non-Performing Assets (NPA) ratio of 6.1 per cent is the lowest in the previous 10 years.
The Finance Minister underlined that all RRBs must have their own up-to-date technology stack to stay relevant and noted that digital banking services like mobile banking will be a boon for regions like the northeastern states and hilly areas with relatively challenging physical connectivity. The sponsor banks have a significant role in these endeavours by providing technical assistance, sharing best practices, and ensuring that RRBs have access to the resources they need to succeed, she added.
Sitharaman also asked the sponsor banks and the RRBs to recognise the challenges that lie ahead and to continue focusing on maintaining asset quality, expanding digital services, and ensuring robust corporate governance.
