Nirmala Sitharaman urges banks to remain vigilant about interest rate risks

New Delhi: Finance Minister Nirmala Sitharaman on Saturday urged banks to remain vigilant about interest rate risks and regularly undertake stress tests, during a meeting of managing directors and chief executive officers of public sector banks (PSBs).

The meeting, held to review the performance of PSBs on various financial health parameters and their resilience in the wake of the current global financial scenario emanating from the failure of some international banks in the US and Europe.

The meeting was also attended by Minister of State for Finance Bhagwat Karad, Financial Services Secretary Vivek Joshi and other senior officials, according to an official statement.

Global financial stress

Sitharaman also discussed the developing and immediate external global financial stress from both short and long-term perspectives. Banks should undertake due diligence and adhere to the regulatory framework by focusing on risk management and diversification of deposits and assets base, she stressed.

The finance minister underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures, according to the statement, which also said that she exhorted PSBs to use this opportunity to frame detailed crisis management and communication strategies.

The chiefs of PSBs informed Sitharaman that they follow the best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management.

Developments in the global banking sector

They also affirmed that they are vigilant of developments in the global banking sector and are taking steps to safeguard themselves from any potential financial shock. All the major financial parameters indicate stable and resilient PSBs with robust financial health, they said.

The minister also stressed that PSBs must 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).

She asked banks to take focused measures to attract deposits, given the steps taken by the government to reduce the tax arbitrage in some debt instruments and pivot their strengthened financial position to support the credit needs of the growing economy.

The minister asked banks to focus on credit outreach in states where the credit offtake is lower than the national average, particularly in the northeast and eastern parts of the country, and enhance business presence in new and emerging areas like One District One Product (ODOP), e-NAM and drones.

Sitharaman said PSBs should promote the Mahila Samman Bachat Patra, announced in the Budget, through special drives and campaigns and also focus on increasing brick-and-mortar banking presence in border and coastal areas.