PSU Banks asked to focus on niche areas, infra sharing


The Ministry of Finance (MoF) is keen that public sector banks should carve out a niche in some specific banking sectors and also share the infrastructure. “Have the banks started carving out a niche for them in some specific banking sector such as retail, SME, project finance and geographies so that they don’t compete for […]


PSU BanksThe Ministry of Finance (MoF) is keen that public sector banks should carve out a niche in some specific banking sectors and also share the infrastructure.

“Have the banks started carving out a niche for them in some specific banking sector such as retail, SME, project finance and geographies so that they don’t compete for the same pie of business? Have the bank boards given any such strategy?” the finance ministry said in a note to the PSU banks.

The government is clearly looking for more co-operation among PSU banks, rather than get into cut-throat competition, to retain their market share at a time small finance banks and payments are all set to make an entry. Some private banks are now fully focusing on retail business and managed to mark their presence in a short period.

On sharing of infrastructure, the ministry asked if the PSU banks, “can use each other’s specialization in various areas to help each other.” While the note did not specify any particular areas, bankers said sharing will make sense in using new technology, skills and infrastructure, especially in rural and semi-urban areas.

With stress on net interest margins (NIMs) and asset quality, “How do the banks plan to improve profitability?” it asked. It advised banks to focus on non interest or fee income, digital banking to control costs. Asking tough questions, it wondered whether banks have any strategy on branch rationalization.

“Today risk function is one of the most critical banking functions. How do banks propose to strengthen it?” the ministry note asks banks. According to the MoF, the slippages continue to be higher than the reduction and increasing impaired assets. “How do the banks plan to tackle this situation? The situation requires special focus in banks like Bank of India, lOB, Indian Overseas Bank, Bank of Maharashtra, UCO Bank and United Bank of India,” it said.

It says asset quality remains a concern for the public sector banks with impaired assets increasing from Rs 6,01,076 crore to Rs 7,00,622 crore which is nearly 12.58 per cent of the total advances. Gross non-performing assets (NPAs) increased by 25.19 per cent (year-on-year) from Rs 2,51,011 crore to Rs 3,14,230 crore, constituting 5.64 per cent of total advances.

The Ministry also sought to know about the steps being taken to improve credit growth. “What is the status post 50 bps reduction in rates by the RBI and all banks reducing their base rates?” it asked. Historically, the credit growth is better in second half of the year starting with the festive season.

Source: The Indian Express

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