Sitharaman also reviewed deposit growth, credit-to-deposit ratio (CD ratio) and asset quality, the finance minister said.

New Delhi: In a significant development on Monday, Finance Minister Nirmala Sitharaman held a performance review meeting with heads of public sector banks. The finance minister urged them to improve their deposit growth. Notably, deposits have been lagging credit growth by 300-400 basis points over the past few months, creating an asset-liability mismatch for banks.

According to news agency PTI, the finance minister reviewed the progress in implementation of various major schemes of the government including PM Awas Yojana, PM Surya Ghar and PM Vishwakarma Yojana and financial performance of banks.

Sitharaman also reviewed deposit growth, credit-to-deposit ratio (CD ratio) and asset quality, the finance minister said.

The Minister asked the heads of banks to focus on core banking business and accelerate deposit growth by introducing innovative products. Earlier this month, the Finance Minister had said that there is a difference between deposit and loan growth.

“Lending growth is high… I will meet banks (on August 19) for various reasons and in the process, I will talk to them about the importance of deposit collection,” she had said.

Independence of RBI on interest rates

The RBI has given them freedom over interest rates, she said, using that freedom to make deposits more attractive. Echoing a similar approach, RBI Governor Shaktikanta Das had asked banks to leverage their vast branch networks to mobilize deposits through innovative products and services.

“Banks are relying more on short-term non-retail deposits and other instruments of liability to meet increased credit demand. This, as I have emphasized elsewhere, could expose the banking system to structural liquidity problems,” he had said.

The meeting also discussed cyber security concerns and threats to the financial sector, sources said.

Issues related to fraud and willful defaulters and progress in National Asset Reconstruction Company Limited (NARCL) also came up for discussion, he added. This is the first review meeting after the presentation of the budget for 2024-25.

On the performance front, the net profit of PSU banks for the financial year ended March 2024 was Rs. 1.4 lakh crore, registering a growth of 35 percent over the previous year. The 12 public sector banks (PSBs) had collectively earned a net profit of Rs 1,04,649 crore in 2022-23.

Of the total profits of Rs 141,203 crore earned in FY24, market leader State Bank of India (SBI) contributed more than 40 per cent of the total, according to figures published on the exchanges. SBI posted a 22 percent higher profit at Rs 61,077 crore compared to the previous financial year (Rs 50,232 crore).

(with input from agencies)