Sitharaman asks banks to review practices to improve performance

Finance minister Nirmala Sitaraman has asked public sector banks to focus on healthy lending practices, so as to prevent bank frauds and wilful defaults, especially by corporate borrowers.

During a performance review of PSU lenders on Saturtday, the finance minister also asked banks to come out of the jungle of non-performing assets by offloading irrecoverable loans to the National Asset Reconstruction Company (NARCL) and look for innovative schemes to reduce coast of funds.

Banks, she said, must focus on due diligence before lending, improve cyber security measures so as to make banking operations smooth and reliable for the customer.

The meeting, chaired by the finance minister, was also attended by minister of state for finance Bhagwat Kishanrao Karad, secretary in the Department of Financial Services (DFS) Vivek Joshi, heads of PSBs and senior DFS officials. 

“The finance minister directed that the acquisition of stressed accounts by NARCL needs to improve further, and necessary efforts must be made in this direction. It was advised that NARCL and banks should hold regular meetings to expedite the on-boarding of stressed accounts,” a finance ministry release stated.

During a meeting after a pre-Budget review of the performance of public sector banks, the finance minister also emphasised the need for a revamp of deposit mobilisation strategy and urged PSBs to look for innovative and attractive deposit schemes to enhance their fund base.

Incorporated in 2021, with PSBs holding a majority stake and the balance by private sector lenders, NARCL is engaged in the clean-up of banks’ stressed assets of Rs500 crore and above. However, banks were reluctant to offload bad assets due to various reasons, including valuation of such loans.

On the issue of bank frauds, the finance minister cautioned PSBs that cases of fraud pose a “critical threat” to both the lender and its customers, besides financial losses. 

She urges banks to adopt responsible lending practices, enhance due diligence before loan disbursal, monitor large loans on a regular basis and take “swift and thorough” legal action in cases of willful default. This, she said, should also be accompanied by strict administrative action against “conniving officials.”