FM urges public sector banks to be more vigilant

TAKING STOCK AMID BANK CRISES IN US & EUROPE

• Asks them to attract more deposits given tax parity of FDs with debt funds

AMIDST THE COLLAPSE of midsized banks in the US and Europe, finance minister Nirmala Sitharaman on Saturday asked public sector banks (PSBs) in the country to remain watchful of the global developments and take measures to protect themselves against any financial shocks.

In a meeting with PSB chiefs in Delhi, she also asked them to work out strategies to attract more deposits, as the government has eliminated the 'tax arbitrage' that some debt instruments have enjoyed.

Her comments come following the amendments to the Finance Bill, 2023, under which debt mutual funds, which invest up to 35% of their proceeds in equity shares of domestic firms, will no longer have the benefit of long-term capital gains. The move is expected to make bank deposits more attractive as both these instruments will now have the same tax treatment on maturity. Further, bank deposits would also have the additional advantage of fixed returns.

Bank credit has remained robust despite the rise in interest rates and grew by 15.7% year-on-year to ₹18.36 trillion as on March 10 this year. Deposit growth has, however, lagged and risen by 10.3% to ₹16.8 trillion in the period. Following the series of interest rate hikes by the RBI, deposit rates have risen as banks are becoming increasingly competitive among themselves to attract deposits in order to bridge the widening gap between credit and deposit growth and lower liquidity in the market.

In the review meeting with heads of public sector banks on Saturday, the finance minister emphasised on the preparedness in the wake of the global developments.