The fallout from the collapse of some international banks in the US and Europe that has spread fears across countries came up for detailed and intense discussion at the Finance Minister Nirmala Sitharaman chaired performance review meeting of Public Sector Banks (PSBs) here on Saturday. 

At the review meeting, PSBs were advised by the Finance Minister to remain vigilant about the interest rate risks and regularly undertake stress tests.

An open discussion was held with the MDs and CEOs of PSBs on the global scenario comprising of the failure of the Silicon Valley Bank (SVB) and the Signature Bank (SB) along with issues leading to the crisis in Credit Suisse. 

Explained: How will the Credit Suisse crisis impact India?  Explained: How will the Credit Suisse crisis impact India?  

Sitharaman reviewed the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives, an official release said.

Also read: Lessons from global banking crisis

Sitharaman emphasised preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base.

She underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures.Sitharaman also exhorted PSBs to use this opportunity to frame detailed crisis management and communication strategies.

Precautionary steps

Sitharaman was also informed by the PSBs that they are vigilant of developments in the global banking sector and are taking all possible steps to safeguard themselves from any potential financial shock. All the major financial parameters indicate stable and resilient PSBs with robust financial health, the release added.

The MD and CEOs of the PSBs apprised the Finance Minister that they follow best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management.

The meeting was also attended by Union Minister of State for Finance Bhagwat Kishanrao Karad; Vivek Joshi, Secretary, Department of Financial Services (DFS); and MDs & CEOs of Public Sector Banks including State Bank of India Chairman Dinesh Khara and PNB MD and CEO Atul Kumar Goel.

Less exposure

Meanwhile, banking industry experts said that the large reliance of Indian banks on local deposits cushions them even as global peers continue to face potential contagion from the woes emanating from the SVB fallout.

Indian banks are reportedly having hardly any exposure directly or indirectly to the SVB amidst the ongoing “gloom and doom” scenario in international banking system.

Explained: Why the fall of Silicon Valley Bank matters to India  Explained: Why the fall of Silicon Valley Bank matters to India  

Sitharaman also wanted PSBs to leverage the full potential of branches opened in International Financial Services Centres in GIFT City Gujarat to identify international opportunities, including prospects related to Persons of Indian Origin (PIOs).

FM’s advise

During the course of discussion on the general banking scenario prevailing in the country, Finance Minister advised PSBs to:

  • Take focused steps to attract the deposits given the steps taken by the Government to reduce the tax arbitrage in some debt instruments
  • Pivot their strengthened financial position to support credit needs of the growing economy
  • 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
  • Enhance business presence in new and emerging areas like One District One Product (ODOP), e-NAM, and drones
  • Aim to increase brick & mortar banking presence in border and coastal areas
  • PSBs should promote the Mahila Samman Bachat Patra announced in Budget 2023-24 through special drives and campaigns.
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