India Moved Away From Twin-Balance Sheet Problem, Banks Now Profitable: Nirmala Sitharaman

The Indian Banking system has come a long way from being saddled with the twin balance sheet problem—where corporate books were overleveraged and banks' balance sheets had companies which were unable to pay back interest on loan amounts, Union Finance Minister Nirmala Sitharaman observed.

"The problem of the twin balance sheet has gone away like the Reserve Bank observed. It is a twin balance sheet advantage that the Indian economy is benefitting from," the finance minister said, while speaking at the inauguration of Punjab and Sind Bank's new corporate office on Saturday.

The sentiment was first alluded to by RBI Governor Shaktikanta Das in the Monetary Policy Committee's meeting in June, where he contrasted the banking turmoil in the U.S. and Europe with that of India.

The minister also acknowledged the role of the Insolvency and Brankruptcy Code, which was introduced in 2016, to help banks realise their money's worth from bad assets.

The government raised the deposit insurance cover to Rs 5 lakhs and formed the National Asset Reconstruction Company to reduce Non-Performing Assets, she noted.

She cited credit rating agency Crisil's findings in April, that stated Banks' gross non-performing assets will reduce to a decadal low of 3.8% by end of FY24.

To further supplement the current health of the Indian banking system, the union minister noted that the net profits of public sector banks have tripled to Rs 1.04 lakh crore.

Since 2014, the provisioning coverage ratio has risen from 58.48% to 90.72%, she said.

Sitharaman encouraged banks to build on the strength of the momentum, follow best corporate governance principles, adhere to regulatory norms, ensure prudent liquidity management and continue focusing on robust asset, liability and risk management elements.

She also asked banks to support the youth through stand-up and start-up schemes, increase their credit outreach, onboard more beneficiaries for the Mahila Bachat Patra and increase priority sector lending.

Apart from this, she asked banks to keep themselves updated on the use of artificial intelligence and to build on cyber security safeguards.