Expedite on-boarding of stressed accounts by the National Asset Reconstruction Company (NARCL), enhance focus on prevention of bank frauds and wilful defaults, improve due diligence before loan disbursal, take proactive cybersecurity measures, and ensure security of customers’ private data–these were among the key directions and recommendations made by the Finance Ministry to public sector banks (PSBs) at a meeting to review the lenders’ performance.
The meeting, held Saturday, was chaired by Finance Minister Nirmala Sitharaman and attended by Minister of State for Finance Bhagwat Kishanrao Karad, Department of Financial Services (DFS) Secretary Vivek Joshi, heads of the PSBs, and senior DFS officials. This could be the last full review of the PSBs before the presentation of the Interim Budget for 2024-25 (FY25) and the Lok Sabha polls, which are likely in a few months.
“The Finance Minister directed that the acquisition of stressed accounts by NARCL needs to improve further, and necessary efforts must be made in this direction. It was advised that NARCL and banks should hold regular meetings to expedite the on-boarding of stressed accounts,” the Finance Ministry said in the post-meeting release. It said that Sitharaman also emphasised the importance of mobilising deposits to the PSBs, urging them to innovate and offer attractive deposit schemes to enhance their deposit base, which will enable them to extend more credit.
A government-backed bad loan aggregator, the NARCL was incorporated in 2021 with PSBs holding a majority stake, while the balance is held by private sector lenders. It was set up with a strategic objective to clean up the legacy stressed assets with an exposure of Rs 500 crore and above in the Indian banking system. However, the NARCL’s progress has reportedly been slow due to a mix of factors that include structural issues as well as reluctance from lenders to offload bad assets over price disagreements.
On bank fraud-related matters, while Sitharaman did express satisfaction at the “improved performance” of the PSBs, she cautioned that cases of fraud pose a “critical threat” to the security of customers and financial institutions, and result in losses and reduced public trust in the banking system. She asked the PSBs to concentrate on fraud prevention activities in the context of large corporate frauds, wilful defaults, as well as “actions that defraud individual customers”.
“The Union Finance Minister instructed the banks to adopt advanced fraud prevention and detection mechanisms and ensure that the customers are further educated about safe banking practices… Banks were also advised to put more effort into recovery from accounts declared as fraud and willful default. The Union Finance Minister also asked banks to monitor the early warning signals to check potential frauds,” the release said, adding that Sitharaman also called for performance reviews of lawyers representing the PSBs to ensure better outcomes in legal cases against defaulters.
Sitharaman told the PSBs that the willful defaults not only strain the lenders’ financial health but also hamper the flow of credit in the economy, and urged them to adopt responsible lending practices. She instructed the PSBs to enhance due diligence before loan disbursal, ensure regular monitoring of large loan accounts, and take “swift and thorough” legal action in cases of willful default. Sitharaman also “exhorted the banks” to take strict administrative action against their own “conniving officials” in cases of fraud and willful defaults.
Issues related to cyber security were also discussed in the review meeting. “The preparedness of all the PSBs in addressing cyber security risks was reviewed by the Union Finance Minister and PSBs were directed to ensure privacy of customer data,” it said. Sitharaman emphasised that cyber security-related issues should be seen from a “system perspective” as a small vulnerability can be “used by nefarious elements to create system-wide risks”.
“Further, the Finance Minister noted the need to adopt proactive cybersecurity measures and implement stringent security protocols to protect sensitive financial information and systems from cyber-attacks and exhorted the banks to adapt to the evolving digital landscape, ensuring that the integrity of domestic financial systems remains uncompromised,” the release said.
The Finance Minister also underscored the “importance of collaboration and mutual learning” among the PSBs and coordination between banks, security agencies, regulatory bodies, and technology experts to build a more resilient financial ecosystem against potential cyber-security threats.
© The Indian Express Pvt Ltd
First uploaded on: 31-12-2023 at 03:54 IST
