The Finance Ministry has told public sector banks to focus on high-quality savings and current accounts, create a crisis response playbook and improve interest rate transmission, among other measures, in an advisory issued to the state lenders, sources told CNBC-TV18 on March 27.
The development comes after Finance Minister Nirmala Sitharman met top public sector bankers on March 25 amid turmoil in the global banking space following the failure of the Silicon Valley Bank (SVB) and the Signature Bank (SB) along with issues leading to the crisis in Credit Suisse.
After the meeting in which the FM reviewed the exposure of PSBs to the developing external global financial stress from both the short and the long-term perspectives and stressed preparedness, the ministry issued an advisory to the lenders that largely focuses on 11 cautionary measures, as per sources.
According to sources, here’s what the Finance Ministry has advised public sector banks
1. Focus on high-quality savings accounts and current accounts; ensure stickiness in deposits
2. Focus on granular deposits vs bulk & Corp deposits
3. Monitor G-Secs share in line with RBI SLR requirement
4. Leverage credit growth for a higher share of quality advances
5. Adopt Ease 5.0 recomendations for mature, comprehensive stress tests
6. Create a crisis response playbook to manage a narrative
7. Proper monitoring & provisioning for pledged shares
8. Manage overall exposure to corporate, including pledged shares
9. Greater implementation of risk-based pricing models
10. Improve interest rate transmission, more external benchmark linked lending rate (EBLR) linked lending
11. Desist from discretionary pricing, follow risk ratings
During the review meeting on Saturday, Sitharaman also underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures. She also told PSBs to use this opportunity to frame detailed crisis management and communication strategies.
She had also advised PSBs to 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 and emerging areas like One District One Product (ODOP), e-NAM, and drones. PSBs should promote the Mahila Samman Bachat Patra announced in the Budget 2023-24 through special drives and campaigns, she advised the lenders.
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