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Finance Secretary Calls for a “Reform‑Driven” Push to Revive Credit and Loan Growth at PSB Manthan
The annual “PSB Manthan” – the flagship forum that brings together India’s public‑sector banks (PSBs) and the regulatory and policy authorities – unfolded yesterday with the Finance Secretary, Nikhil Parulkar, taking the podium to outline the next chapter in the country’s credit story. The Secretary, who is also the Minister of Finance’s principal advisor on banking and financial inclusion, stressed that the road to sustainable credit expansion lies not just in tightening regulation but in a concerted, reform‑oriented approach that streamlines processes, harnesses technology, and sharpens risk management.
Setting the Stage: What PSB Manthan Is About
PSB Manthan has long served as a crucible for aligning the interests of the government, the Reserve Bank of India (RBI), and the banks that form the backbone of India’s credit market. The event is an annual opportunity for policy makers to share data, discuss challenges, and lay out reforms that can affect the health of the banking system. In 2023, the event saw 17 of India’s largest PSBs in attendance, along with representatives from the RBI, the Securities and Exchange Board of India (SEBI), and the Department of Economic Affairs.
Finance Secretary’s Key Take‑aways
Parulkar began by highlighting the stark reality of a slowdown in credit and loan growth. While the last fiscal year recorded a 12.8% increase in net loans, the growth rate was a noticeable drop from the 16.6% surge seen in 2021‑22. The Secretary pointed to two core reasons for the slowdown:
Tightening of credit conditions – After a period of aggressive lending to support the pandemic‑era rebound, banks are now tightening their risk appetite. RBI’s policy shift to a “high‑quality asset” focus has prompted PSBs to reassess credit exposures, especially in the SME and agriculture sectors.
Rising non‑performing assets (NPAs) – The NPA ratio for PSBs hovered at 3.85% last year, up from 3.44% in 2020. Rising NPAs dampen the appetite for new credit and raise the cost of funds.
In response, Parulkar urged the banks to adopt a “reform‑driven” mindset, emphasizing the following priorities:
Digital transformation of credit appraisal – By leveraging big data, AI and machine learning, banks can reduce the time taken to approve loans from weeks to days. The Secretary cited RBI’s recent guidelines on “Digital Risk Management” as a stepping stone.
Early warning systems and stress‑testing – Improved data analytics will allow banks to spot early signs of distress in borrower portfolios. Parulkar urged banks to embed these tools in their daily risk management routines.
Simplifying the loan application process – One of the most cited hurdles to borrowing is the complexity of the application paperwork. The Secretary called for a unified, digital “one‑stop” platform that banks and borrowers can use to complete the entire loan lifecycle, from credit scoring to disbursement.
Policy‑level support for high‑quality credit – The Secretary stressed that while credit tightening is necessary to preserve asset quality, the government must also facilitate credit to productive sectors via policy incentives, such as reduced interest rate subsidies for agriculture loans or guaranteed financing for MSMEs.
How the RBI’s Framework Fits In
Parulkar referenced several RBI documents that form the backbone of the current regulatory environment. The RBI’s “Policy Statement on Credit Growth” (released July 2023) and the “Guidelines on Digital Risk Management” both stress the need for high‑quality, sustainable lending. The Secretary argued that PSBs should see these documents not as constraints but as guides for a “risk‑aware, growth‑oriented” credit model.
He also touched upon the RBI’s forthcoming monetary policy decisions. With the next Monetary Policy Committee (MPC) meeting on the horizon, the Secretary highlighted that a well‑managed credit environment will help in maintaining price stability and ensuring that the cost of borrowing remains at a level that supports growth without creating systemic risk.
A Call to Action
In a closing remark, Parulkar framed the current situation as an inflection point. He said, “We are at a crossroads where the quality of our banking assets will determine the trajectory of India’s economic recovery.” The Secretary urged PSBs to:
- Reinforce risk‑based pricing so that higher risk borrowers are charged commensurate rates.
- Boost internal capacity for data science and digital infrastructure.
- Adopt a transparent communication framework with regulators, so that policy adjustments can be made in a timely manner.
He concluded by acknowledging that the journey will be challenging but emphasized that the collaborative spirit showcased at PSB Manthan is a strong foundation for the reforms ahead.
What’s Next
Following the event, the PSB group will convene a series of working‑group meetings to translate these broad directives into concrete action plans. Meanwhile, the RBI will likely release updated guidelines on digital risk management early next month, which will set the stage for banks to align their systems accordingly.
For readers wanting to dive deeper, the original article also linked to the RBI’s “Digital Risk Management Guidelines” (link in the source) and the PSB Group’s annual report for FY 2023–24 (link in the source). These documents provide further context on the policy backdrop and the quantitative performance of PSBs, respectively.
In summary, the Finance Secretary’s message at PSB Manthan was clear: Sustainable credit growth in India hinges on a proactive, technology‑driven, risk‑aware approach. The PSBs, the regulators, and the broader economy must align their efforts to ensure that credit continues to flow to the sectors that need it most—while safeguarding the quality and stability of the financial system.
Read the Full Zee Business Article at:
[ https://www.zeebiz.com/personal-finance/banking/news-psb-manthan-psbs-finance-secretary-banking-reforms-credit-growth-loan-growth-ease-378688 ]