Mutual Fund: Money is moving into mutual funds and public sector banks are losing savings accounts at a faster rate than private banks. Banking Secretary Vivek Joshi told CNBC-TV18 that this is a concern and a challenge for the banking industry. He said that pressure is also being applied to government-owned banks’ net interest margins.
PSBs Alarmed by Current and Savings Account (CASA) Trends
Joshi, Secretary, Department of Financial Services (DFS), stated on Tuesday, February 6 that the public sector banks (PSBs) are concerned about the growth in current accounts and savings accounts (CASAs).
“The deposit growth rate is around 13%, whereas the advances growth rate is around 16% in the PSBs. And that has been the case for most of the years. However, if you look at the performance of PSBs, their CASA is getting affected. So, that is a cause of concern not only for public sector banks but also for the banking system as a whole,” Joshi told CNBC-TV18.
Joshi Points to Shifting Savings Landscape
Joshi continued, “Mutual funds have a role in this trend too.” “I think the reason for that may be that people are moving their savings from banks to maybe mutual funds, etc. So, that is the biggest challenge for the banks in the coming days or coming quarters which I see.”
The Banking Secretary further stated that public lenders will be spared until August 2025 and that the government is requesting exemptions for PSBs under the 75% minimum public ownership (MPS) standard.
Joshi Highlights Varied Government Holdings in PSBs
Joshi said that “If you look at the public sector banks, we have, on one end of the spectrum, SBI, which has around 56% holding by the government. And then, on the other extreme, we have Indian Overseas Bank, UCO Bank or Bank of India, whereby the shareholding of the government is more than 95% or so.”
He added, “Banks are allowed by the government from time to time to offload equity and raise money from the capital market. So, that has been the thinking until now. As per SEBI regulations, they are supposed to maintain the 75% shareholding by the government, for which we take exemption from the Department of Economic Affairs. The current exemption will stay until August 2025.”
Financial Inclusion Takes Center Stage
Joshi continued, saying that the PSBs’ major areas of attention continue to be financial inclusion, NPA recovery, and cyber security. “In public sector banks, one part is very important for the DFS and that is the financial inclusion schemes—the Prime Minister Jan Dhan scheme, the Prime Minister’s Suraksha Bima Yojana, Jeevan, Jyoti Yojana etc.”
He added that, “Then the two most important schemes that have been launched very recently by the government are the PM SVANidhi scheme, in which we have already covered 76 lakhs of street vendors. And then there is another new scheme called PM Vishwakarma for artisans. So, those are going to be my immediate priorities in the coming months.”
Loan Recovery Milestone
The Banking Secretary went on to say that ₹61,000 crore was recovered from loans in FY24. He said, “The other priorities are to improve the overall work of the public sector, especially the recovery part. In the banking system once we technically write-off, once we provide for the NPAs, then that goes out of the balance sheet, but that should not go out of the minds of the MDs and top management of the banks.”
He Further added, “That has been one of my focus areas after I took over. In public sector banks, last financial year (FY23), the recovery was almost Rs 1 lakh crore. In the current nine months, it has been Rs 0.61 lakh crore.”
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