Finance Minister Nirmala Sitharaman, in her meeting with the chiefs of public sector banks (PSBs) in New Delhi on March 25, asked them to focus on “risk management” and “diversification of deposits” amid the crisis that has hit the banking sector in the United States.
The meeting was called to review the preparedness of PSBs in wake of the stress in the US banking system, and the resulting effect it has on the lenders based in Europe.
During the meeting, Sitharaman said that PSBs must “look at business models closely to identify stress points, including concentration risks and adverse exposures”, stated a release issued by the Ministry of Finance.
Sitharaman also asked the public sector lenders to “use this opportunity to frame detailed crisis management and communication strategies”, it added.
During the review meeting, 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 and the Signature Bank, along with issues leading to the crisis in Credit Suisse, the finance ministry said.
Sitharaman reviewed the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives, it added.
She emphasised on “preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base”.
The PSBs apprised Sitharaman 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 finance ministry.
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, it said.
The stress in the global banking sector came to the fore after the US-based Silicon Valley Bank, which held deposits from scores of startups and tech firms across the globe, collapsed on March 10. Two days later, another major American lender - Signature Bank - was shut down by the regulators.
The crisis rattled markets globally, with bank stocks in Europe being the most adversely affected. Credit Suisse, the 166-year-old Swiss lender, faced a rout in its value before being acquired in a government-brokered deal by rival UBS Group on March 19.
Sitharaman, in the review meeting with PSBs, asked them to “regulatory undertake stress tests” and “remain vigilant about interest rate risks”.
The finance minister also pointed out that the public sector lenders must leverage the full potential of branches opened in International Financial Services Centres in GIFT City, Gujarat.
Apart from the MDs and CEOs of PSBs, the meeting was also attended by the Minister of State for Finance Bhagwat Karad and Secretary of the Department of Financial Services Vivek Joshi.
A day ahead of the meeting, sources had told Moneycontrol that the government has asked a clutch of major PSBs, including the country's largest lender by assets, State Bank of India (SBI), to furnish data on bond investment portfolios.
