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Sitharaman Urges Banks to Focus on Core Functions and Risk Management

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  Published in Business and Finance on Saturday, March 21st 2026 at 21:11 GMT by The Hans India
      Locale: INDIA

New Delhi, March 22nd, 2026 - Finance Minister Nirmala Sitharaman delivered a clear message to Indian banks today: refocus on core banking functions, bolster risk management, and prioritize asset quality. Speaking at a webinar hosted by the Federation of Indian Chambers of Commerce & Industry (Ficci), Sitharaman emphasized a return to foundational principles as the sector navigates the ongoing economic recovery following the disruptions of the COVID-19 pandemic.

Her address wasn't a criticism of existing strategies, but rather a call for strategic recalibration. While acknowledging the innovative strides many banks have made in diversifying services and embracing fintech, Sitharaman cautioned against "unnecessary diversions" from core competencies. This message suggests a concern that banks may have spread themselves too thin, potentially impacting efficiency and, critically, increasing risk exposure.

"Banks have to refocus on their core business, strengthen risk management. Diversions are unnecessary," Sitharaman stated. "Banks should be able to use technology, digital advances and other tools to enhance their performance." The emphasis on technology isn't simply about adopting new tools, but about applying them intelligently to core functions - improving efficiency, reducing costs, and strengthening internal controls.

This directive comes at a pivotal moment for the Indian banking sector. While the economy is showing signs of robust recovery, legacy issues continue to plague many institutions. Non-Performing Assets (NPAs), loans where borrowers have defaulted, remain a significant challenge. The pandemic exacerbated this problem, pushing many businesses to the brink and forcing banks to increase provisioning for potential losses. Successfully resolving existing NPAs, and preventing future accumulation, is therefore paramount.

Sitharaman specifically called for improved asset quality and streamlined resolution mechanisms for NPAs. She highlighted the potential of technology - including digital advancements and the burgeoning fintech sector - to facilitate this process. This isn't surprising, given the increasing role of data analytics, AI-powered credit scoring, and digital platforms in modern banking. These technologies can enable earlier detection of deteriorating asset quality, more efficient recovery processes, and improved risk assessment.

Beyond NPAs: A Deeper Look at the Concerns

The Finance Minister's message hints at broader concerns beyond just NPAs. Diversification, while potentially lucrative, introduces new complexities and risks. Banks venturing into areas outside their traditional expertise - for example, significant investments in unrelated industries or overly complex financial instruments - can expose themselves to vulnerabilities they are not equipped to manage. This is particularly true in a dynamic global environment characterized by geopolitical instability and rapidly evolving economic conditions.

Strengthening risk management isn't merely about avoiding losses; it's about ensuring the stability of the entire financial system. A robust banking sector is the lifeblood of a thriving economy, providing the credit necessary for businesses to grow, invest, and create jobs. Weakened banks, burdened by bad loans and inefficient operations, can stifle economic growth and undermine confidence.

Industry Response and Future Outlook

Industry experts largely agree with the Finance Minister's assessment. Many believe a renewed focus on core competencies and risk mitigation is essential for long-term sustainability. "The Minister is right to emphasize the fundamentals," says Dr. Anjali Sharma, a leading banking analyst at Credit Suisse India. "Banks need to ensure they have a solid foundation before pursuing ambitious growth strategies. Technology is undoubtedly a key enabler, but it's not a panacea. It needs to be integrated strategically within a strong risk management framework."

Several banks have already begun to implement measures in line with Sitharaman's directives. State Bank of India, for example, recently announced a major overhaul of its risk management systems, incorporating AI-powered fraud detection and predictive analytics. Private sector banks are also investing heavily in digital transformation initiatives aimed at improving efficiency and enhancing customer experience.

The coming months will be crucial in determining whether these efforts will bear fruit. The Indian banking sector faces a complex set of challenges, including rising interest rates, inflationary pressures, and global economic uncertainty. However, with a renewed focus on core functions, robust risk management, and strategic adoption of technology, Indian banks can position themselves for sustainable growth and contribute meaningfully to the nation's economic progress.