Finance Minister Nirmala Sitharaman recently highlighted the lending practices of the UPA government, stating that money was lent to not-so-worthy customers in an unprofessional manner, ultimately leading to Non-performing assets (NPA). Speaking at the inauguration of the new Corporate Office of Punjab and Sindh Bank in New Delhi, she emphasized the need for comprehensive measures to improve the performance of the Indian banking sector.
According to Sitharaman, the Modi government introduced the Insolvency and Bankruptcy Code (IBC) in 2016 to expedite the recovery of bad loans. Additionally, the government raised the Deposit Insurance cover to Rs 5 lakh to protect customer deposits. Furthermore, the National Asset Reconstruction Company Ltd (NARCL) was established to facilitate asset reconstruction and recovery.
Sitharaman credited the stability and profitability of the banking sector to the government’s efforts, particularly the implementation of the 4R formula, which comprises Recognition, Resolution, Recapitalization, and Reforms. She urged banks to continue adhering to best corporate governance practices, regulatory norms, and prudent liquidity management. The Finance Minister also stressed the importance of robust asset-liability and risk management.
To achieve optimum utilization of financial inclusion schemes, Sitharaman urged banks to adopt a proactive approach in reaching out to people, with a focus on credit outreach in regions where the credit offtake is lower than the national average. She specifically mentioned the NorthEast and eastern parts of the country as areas needing attention. Additionally, the Finance Minister advised increasing brick and mortar banking presence in border areas, particularly those covered under the Vibrant Village Program.
Sitharaman highlighted the positive performance of Indian banks, quoting an international magazine that described them as generating significant profits. She also mentioned that S&P has raised the ratings of Indian banks due to their improved performance. Public Sector Banks (PSBs) have witnessed a substantial increase in net profits, nearly tripling from Rs 36,270 crore in FY2014 to Rs 1.04 lakh crore in FY 2022-23.
Drawing attention to the Twin-Balance Sheet Problem inherited in 2014, the Finance Minister explained that this referred to the troubled balance sheets of both banks and corporates. However, various reform measures implemented by the government have resulted in a newfound Twin Balance Sheet Advantage, where banks are thriving, expanding their businesses, and enhancing the economy.
Crisil, a credit rating agency, estimates that the Non-Performing Assets (NPAs) of Indian banks will decrease to a decade-low of 3.8 percent by the end of FY 2023-24.
In conclusion, Sitharaman’s remarks shed light on the lending practices under the UPA government, emphasizing the need for professionalism and a comprehensive approach to mitigate NPAs. She commended the Modi government’s reforms and their positive impact on the stability and profitability of the banking sector. Moving forward, the Finance Minister urged banks to continue prioritizing corporate governance, regulatory compliance, and prudent management while expanding their presence in underserved regions.
