The Finance Ministry has issued a clear directive to public sector banks (PSBs) to significantly enhance their lending activities towards micro, small and medium enterprises (MSMEs) and the agriculture sector. This strategic move was announced during a comprehensive performance review meeting held on Wednesday.
Department of Financial Services (DFS) Secretary M Nagaraju, who chaired the meeting with bank chiefs, emphasized the need for state-owned lenders to combine financial prudence with innovation while deepening their customer-centric banking approach. "Banks must lead India's financial transformation guided by prudence, inclusion, and innovation," the ministry stated in its official communication.
Digital Transformation and Cybersecurity Focus
During the detailed review session, public sector banks presented substantial updates on their digital banking initiatives, mobile application advancements, and customer outreach programs. Nagaraju specifically stressed the critical importance of ensuring robust cybersecurity measures, operational resilience, and faster grievance redressal mechanisms.
The DFS Secretary called for a carefully balanced approach between digital expansion and financial inclusivity. He actively encouraged banks to responsibly leverage artificial intelligence and data analytics to enhance customer experience and improve lending efficiency across all sectors.
Government Scheme Implementation
Banks received explicit instructions to accelerate credit disbursements under several key government initiatives, including PM Surya Ghar Muft Bijli Yojana, PM Vidya Lakshmi Yojana, PM Vishwakarma Yojana, and the JanSamarth digital lending platform. The focus remains on ensuring faster loan processing and extending comprehensive support through business correspondents.
The review meeting also covered substantial progress on flagship financial inclusion schemes such as PM Jan Dhan Yojana (PMJDY), PM Jeevan Jyoti Bima Yojana (PMJJBY), PM Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), PM Mudra Yojana (PMMY) and PM SVANidhi. Nagaraju directed banks to expand their outreach in aspirational and underserved districts under the government's Aapki Poonji, Aapka Adhikar campaign and ensure effective implementation of the integrated unclaimed asset portal.
Strong Financial Performance and Future Roadmap
On the asset quality front, public sector banks reported continued improvement with gross NPAs declining to 2.30% and net NPAs reducing to 0.45% as of September 2025. Recovery efforts have gained significant traction, with the National Asset Reconstruction Company Limited (NARCL) acquiring bad loans worth Rs 1.62 lakh crore during the first half of FY26.
Banks were advised to make better utilization of digital tools such as BAANKNET for transparent resolutions and to strengthen their early warning systems. The meeting highlighted the necessity to prepare for the transition to the Expected Credit Loss (ECL) accounting framework through data-driven provisioning and robust risk models.
Public sector banks demonstrated strong financial performance, posting a combined net profit of Rs 93,675 crore in the first half of FY26, reflecting steady year-on-year growth. Aggregate business stood at Rs 261 lakh crore, with advances growing 12.3% and deposits increasing 9.6% year-on-year.
The DFS clearly indicated that PSBs are expected to scale up lending to emerging sectors including renewable energy, food processing, tourism, and data centers, aligning perfectly with the government's Viksit Bharat 2047 vision. "The ministry's focus is clear — growth must be inclusive, digital, and sustainable," an official familiar with the meeting proceedings confirmed.
