Finance ministry to assess PSB performance and credit disbursement

Finance Ministry

The finance ministry met with the heads of state-run banks on Tuesday to review the lenders’ credit disbursement and overall financial performance, official and banking, ahead of the crucial holiday season.

The Department of Financial Services had called the meeting to discuss the lenders’ asset quality, with a particular focus on large bad loans, their implementation of various government programmes, and capital-raising strategies. In order to capitalise on holiday demand and increase loan flow, the finance ministry requested state-run lenders conduct district-based credit outreach programmes in the run-up to Diwali last year.

The most recent meeting is a part of the finance ministry’s larger engagement with public-sector banks (PSBs), which aims to not only review their performance and future strategies but also to generate ideas for implementing next-generation reforms in a variety of government programmes, particularly those aimed at promoting financial inclusion.

Senior officials believe there is still room for state-run banks to lend more because of improvements in their profitability and asset quality, even though credit flow has improved in recent months as a result of government encouragement. The government wants the lenders to sate the expanding credit appetite of a recovering economy that is also experiencing significant external headwinds as a result of the conflict between Russia and Ukraine.

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Credit disbursement has increased recently after staying relatively steady for the majority of the past two years. Credit from non-food banks increased 13.7 per cent in June compared to 4.9 per cent a year earlier. However, credit to industry increased at a slower rate of 9.5 per cent in June as opposed to a contraction of 0.6 per cent in May.

According to data from the Reserve Bank of India (RBI), the asset quality of the banking system has improved, with the gross non-performing asset (NPA) ratio falling from 7.4 per cent in March 2021 to a six-year low of 5.9 per cent in March 2022. Additionally, the net bad loan ratio decreased from 2.4 per cent in March 2021 to 1.7 per cent in March 2022.

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