Finance Minister Nirmala Sitharaman is scheduled to meet Managing Directors of public sector banks (PSBs) on March 25 for performance review in the backdrop of few failed US banks and liquidity crisis faced by Credit Suisse.

The meeting is going to take stock of the progress made by banks in achieving targets set for the various government schemes, including Kisan Credit Card (KCC), Stand-Up India, Pradhan Mantri Mudra Yojana (PMMY), and emergency credit line guarantee scheme (ECLGS) to help businesses affected by Covid-19, according to sources.

This is the first full review meeting after the presentation of Budget 2023-24 and banks would be asked to focus on the areas highlighted by the Budget, including credit flow to productive sectors.

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The Finance Minister would review credit growth, asset quality, and capital raising and business growth plan of banks for the next financial year, the sources said, adding non-performing assets (NPAs) of ₹100 crore and the recovery status would also be discussed.

The meeting comes in the backdrop of global concern over the failure of banks due to aggressive monetary tightening. The US Fed hiked rates by 25 bps, on Wednesday, to tame high inflation despite the banking crisis. To fight the persistent hot inflation, the Fed has so far increased rates from zero to 4.75 to 5 per cent, all in just one year.

Meanwhile, policymakers and experts have said that the Indian banking system is in good shape and can handle the situation caused due to monetary tightening.

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Various reforms undertaken by the government have resulted in significant improvement in the asset quality of public sector banks with gross NPA ratio declining from the peak of 14.6 per cent in March 2018 to 5.53 per cent in December 2022.

All PSBs are in profit with an aggregate profit of ₹66,543 crore in FY22, and that further increased to ₹70,167 crore in the first nine months of FY23.

At the same time, resilience has increased with the provision coverage ratio of PSBs rising from 46 per cent to 89.9 per cent in December 2022. The Capital adequacy ratio of PSBs improved significantly from 11.5 per cent in March 2015 to 14.5 per cent in December 2022.

Total market capitalisation of PSBs (excluding IDBI Bank, which was categorised as a private bank in January 2019) increased from ₹4.52 lakh crore in March 2018 to ₹10.63 lakh crore in December 2022, he said.

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The government implemented a comprehensive 4R strategy of Recognising NPAs transparently, Resolution and recovery, Recapitalising PSBs, and Reforms in the financial ecosystem.

Major banking reforms undertaken by the government over the last eight years ensured credit discipline, responsible lending, and improved governance, besides adoption of technology, amalgamation of banks, and maintaining general confidence of bankers.