Banks should Enhance Agricultural Sector Lending, Targeting Small-Scale Farmers, Sitharaman Recommends

Finance Minister Nirmala Sitharaman has instructed public sector banks to expand priority sector lending in the agriculture sector, particularly for small and marginal farmers and micro enterprises.

She chaired a meeting to assess the performance of public sector banks in terms of financial health parameters for the fiscal year 2022-23, with a focus on positive macro trends, improved business sentiments, the "twin balance sheet advantage," and the overall performance of state-owned banks.

Sitharaman stressed the importance of banks adhering to the regulatory framework by emphasizing risk management and diversification of their business base. Despite recent challenges in the global banking sector, it was noted during the meeting that the business outlook is gradually improving.

The Finance Minister also urged banks to meet the credit targets for street vendors under the PMSVANidhi scheme and maintain the momentum of disbursals achieved under the program.

She emphasized the need for fair and transparent recognition of non-performing assets (NPAs) in accordance with the existing guidelines of the regulator. Banks were advised to periodically review NPAs internally to ensure accurate recognition and reporting of stressed assets.

Furthermore, Sitharaman directed the sponsor banks of regional rural banks (RRBs) to facilitate timely technological upgrades of RRBs and continuously monitor their operations. This would enhance their efficiency and effectiveness, providing significant benefits to people in rural areas.

The Minister also urged banks to address business model risks through robust risk management practices and efficient asset liability management.

In addition, Sitharaman instructed banks to take steps to improve deposits, focusing on providing easy services and ensuring customer protection.

Notably, the asset quality of banks has significantly improved, with gross NPAs at 4.97% and net NPAs at 1.24% as of March 2023.

During the fiscal year 2022-23, public sector banks collectively achieved a record net profit of approximately Rs 1.05 lakh crore, nearly tripling the net profits earned in 2013-14.

With a high capital adequacy ratio of 15.53% (comparable to major economies worldwide), clean balance sheets supported by a healthy provision coverage of 90.68%, and enhanced resilience, banks are well-positioned to meet the credit requirements of the productive sectors in the growing economy.