The Indian Finance Ministry is calling on Public Sector Banks (PSBs) to initiate consultations at the branch level over a period of one month. This process is designed to encourage ideas on how to streamline operations within the banking sector, with the ultimate aim of boosting the country’s financial status and aiding it in achieving its target of becoming a 5 trillion dollar economy by 2024-25.
The Consultation Process
This consultative process will occur in three stages. The first stage will take place at the branch or regional level, followed by consultations at the state level. The process will conclude with a two-day national-level brainstorming session in Delhi. The insights and suggestions obtained from this campaign, starting from 17th August 2019, will be incorporated into a roadmap designed to guide the future growth of the banking sector.
Specific Objectives Addressed during the Consultation
During these discussions, several key topics will be addressed. The performance review will be conducted to synchronize banking operations with region-specific issues. Branches will be assessed based on their performance in several areas including swachh credit (loans in water and sanitation sector), financial inclusion, women’s empowerment, direct benefit transfer, digital economy, ATM usage and performance, and corporate social responsibility. Also, the process is designed to identify solutions to current challenges faced by banks such as high Non-Performing Assets (NPAs), dwindling profits, and problems related to customer responsiveness.
The consultation process will also target certain strategic areas such as examining preparedness of banks in cybersecurity and data analytics, focusing on enhancing credit disbursement to support economic growth, evaluating credit provisions for infrastructure enhancements, assessing the role of the banking sector in doubling farmers’ income and promoting water conservation.
The Background Scenario
It comes at a time when India’s economy has slowed down to a 5-year low of 6.8%, with the automobile sector going through its worst crisis in two decades and the real estate sector piling up unsold homes. Fast Moving Consumer Goods (FMCG) companies have also reported a drop in volume growth for the first quarter of this year (April – June, 2019).
Rate Trends and Loans Performance
The Reserve Bank of India has reduced the repo rate by 75 basis points from February to June 2019. However, banks have cut their interest rates on new rupee loans only by 29 basis points. Even though lending to industries has jumped significantly from 0.9% in the June 2018 quarter to 6.6% in the same quarter of 2019, credit to the MSME sector reduced from 0.7% to 0.6%.
Financial Health of the Banks
| Bad Loans (NPAs), 2018-19 | Bad Loans (NPAs), 2017-18 |
|---|---|
| Rs 9.34 lakh crore | Rs 10.36 lakh crore |
Future Directions
Bolstering the green economy, improving education loans, as well as other sectors such as Micro, Small, and Medium Enterprises (MSMEs) and exports will be given attention. The consultations are a proactive move by the Finance Ministry to steer the banking sector towards supporting broader economic goals and societal outcomes.
