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Business News/ Economy / PSBs level up, need good hands at top: FM Sitharaman
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PSBs level up, need good hands at top: FM Sitharaman

No need for capital infusion; PSBs seeking outside talent, said the finance minister

Finance minister Nirmala Sitharaman at Mint Investment Summit on Saturday. (Photo: Mint)Premium
Finance minister Nirmala Sitharaman at Mint Investment Summit on Saturday. (Photo: Mint)

Mumbai: The government is nudging state-owned banks to be more professional in their functioning, Union minister for finance and corporate affairs Nirmala Sitharaman said, pointing out that these lenders are no longer reliant on capital infusion from the Centre.

The government has already split the role of chairman and managing director in public sector banks (PSBs) into a non-executive chairman, and a managing director and chief executive officer. It has also created the Financial Services Institutions Bureau—recast from the earlier Banks Board Bureau—to recommend appointments as whole-time directors and non-executive chairpersons on the boards of financial services institutions.

“The (public sector) banks have now come to stand on their own; they are able to go to market to raise funds for the developmental activities and they are no longer looking at the government to infuse capital every year," Sitharaman said at the Mint India Investment Summit on Saturday.

In May, Reserve Bank of India (RBI) governor Shaktikanta Das had told directors of state-owned banks to further strengthen the governance and assurance functions of risk management, compliance and internal audit, so that they are able to identify and mitigate risks at an early stage.

Sitharaman said that PSBs have requested the Centre to let them to recruit from the market. The government, she said, wants high-quality professionals running the banks. Even today, PSBs are laterally hiring from the market but these are for specialized roles, such as digital banking and wealth management, besides others. With digital banking becoming more integral to business, PSU banks are hiring specialists even for mid- and junior level roles from IT companies and private lenders. Lateral hiring is the process of recruiting an expert for a specific role from another organization.

The health of the banking sector has improved, and state-owned banks are now providing rich dividends to the government, Sitharaman added. “Their NPA levels are coming down and they are only going to further come down in the next few months," she said.

As per RBI data, gross non-performing assets (NPA) as a percentage of gross loans stood at 5% for public sector banks and 2.3% for private sector banks as on 31 March, 2023, as compared to 7.3% and 3.8% respectively in FY22. The overall gross NPA ratio of banks improved from 5.8% in FY22, to 3.9% in FY23, and further to 3.2% as on 30 September.

That apart, following several amalgamations, India now has 12 public sector banks. While a majority of these used to be dependent on the government for capital infusion, the last few years have been different as they have tapped the public markets for funds. Between FY18 and FY22, the government put in 2.86 trillion into public sector banks, as per data presented in the Parliament by junior finance minister Bhagwat Karad in March 2023. The cleanup of legacy bad loans and stronger underwriting decisions have played a role in the improvement of their health.

Asked about the trends in private capex, the minister said the private sector is investing significantly in areas offering new opportunities. “They are looking at hydrogen, green hydrogen, ammonia, semiconductors, etc. Imagine three semiconductor investments with investments of over 1 lakh crore. That’s not government investment. So actually, all of us will have to now be ready to look at these sectors where the private sector has already invested and shown that appetite to take high risks."

The economy, the finance minister said, is expected to expand 8% or above in the last quarter of the current financial year, leading to an equivalent growth for the whole of FY24.

“Hopefully, the fourth quarter (of FY24) which ends tomorrow will also have it in the range of 8% or above 8%, resulting in 2023-24 having an average GDP growth of 8% or over 8% is what my expectation is," Sitharaman said.

India witnessed a GDP growth of 7.8% in Q1, 7.6% in Q2 and 8.4% in Q3 of 2023-24. “Three quarters of consistent growth over 8% is really good news, and I thank the people of India for being so energetic, and coming out to make sure that India remains the fastest growing economy," she said.

As per RBI’s January bulletin, the upside surprise in the National Statistics Office’s first advance estimates of national income released in January that pegged the FY24 GDP growth at 7.3% was underpinned by a shift from consumption to investment on the back of the government’s thrust on capex. The Indian economy has typically been driven by domestic consumption, followed by investments and exports. Subsequently, the second advance estimate pegged GDP growth at 7.6%.

Several institutions have raised their GDP growth forecasts for India after the Q3 growth number of 8.4% exceeded expectations. The most recent upgrade came from Goldman Sachs which raised its forecast for India’s economic growth in calendar year 2024 to 6.6%, up 10 basis points (bp) from earlier.

On inflation, the finance minister pointed out that the government is “playing in tandem with the Reserve Bank of India" to ensure that inflation is well within the tolerance band and that food inflation in particular is contained. While saying that seasonal shortages in food lead to spikes in inflation, Sitharaman said it is currently under control because there is a group of ministers who are looking at the issue.

“So India’s picture, if you want to look at it that way at a macro level—macroeconomic stability is in place, inflation management is far better than the last 10 years before 2014 where it went to double digit," she said.

Retail inflation as measured by the consumer price index (CPI) came in at 5.09% in February and has stayed within RBI’s flexible inflation target of 2-6% for the sixth consecutive month. The RBI has, however, reiterated the inflation target is 4% and the central bank would look for durable signs of deceleration in inflation.

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 31 Mar 2024, 11:09 PM IST
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