Finance Minister Nirmala Sitharaman urges PSBs to amplify lending to key sectors with tailored credit models
Banks regulated by the government are encouraged to boost their lending activities towards productive sectors.
In a recent call-to-action, Finance Minister Nirmala Sitharaman has challenged public sector banks (PSBs) to buckle down and capitalize on the Reserve Bank's 50 basis points rate cut by escalating lending to pivotal economic sectors, such as renewable energy, small modular nuclear reactors (SMRs), and Micro, Small, and Medium Enterprises (MSMEs).
During a performance review, the minister encouraged PSBs to strategize proactively and identify emerging growth opportunities for the coming decade, which could potentially boost their financial health and growth potential.
Though well-capitalized—with a capital to risk-weighted assets ratio of 16.15% as of March 2025—the minister urged PSBs to prioritize robust underwriting and risk management standards, in addition to focusing on gathering more low-cost deposits.
Energy sector investments, particularly in renewable and sustainable avenues, received the minister's backing as a vital aspect of India's green growth agenda. With the Budget 2025-26 declaration to spearhead homegrown SMR development, banks were encouraged to mediate lending with innovative credit models to support this critical sector.
The minister mandated PSBs to maintain or transcend the FY25 credit growth rate in the present financial year and encouraged them to fortify the implementation of the New Credit Assessment Model for MSMEs to enhance capital access and speed up the credit flow to this crucial segment.
By the end of FY25, the combined profits of 12 PSBs climbed to a whopping Rs 1.78 lakh crore, registering a growth of 26% over the previous year.
On June 6, the RBI's six-member monetary policy committee, led by governor Sanjay Malhotra, reduced the benchmark repurchase or repo rate by 50 basis points to 5.5%. The cash reserve ratio was also trimmed by 100 basis points to 3% in incremental stages—introducing an extra Rs 2.5 lakh crore to the already-excess liquidity in the banking system.
The minister additionally stressed the importance of onboarding more customers onto the government's initiatives in efforts to expedite financial inclusion. A review of various segments and progress in government schemes like Kisan Credit Card, PM Mudra, and three social security schemes—Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and Atal Pension Yojana (APY)—was undertaken.
On the asset quality front, the finance minister praised the diminutive level of non-performing assets in the banking sector, expressing assurance that top management would continue to keep it in check. In 2024-25, PSBs reported a record net profit of Rs 1.78 lakh crore, signifying ongoing strengthening of financial performance. Net Non-Performing Assets (NNPAs) dipped to a multi-year low of 0.52%.
Innovative credit models for renewable energy, SMR, and MSMEs
- Specific credit models for renewable energy and SMR lending: To stimulate investments in clean energy and indigenously designed SMRs, PSBs are mandated to devise credit models crafted with an emphasis on integrating risk assessment and management strategies, adhering to sustainable underwriting standards, and addressing the long gestation periods associated with these innovative sectors. The goal is to catalyze growth and sustainability in India's energy sector.
- Strengthening the New Credit Assessment Model for MSMEs: In order to streamline capital access for small businesses and hasten the flow of credit, the minister directed PSBs to bolster the implementation of the New Credit Assessment Model for MSMEs. This model seeks to alleviate bureaucratic hurdles by embracing digital tools, minimizing paperwork, and incorporating sector-specific risk assessments.
In conclusion, PSBs are working diligently on designing tailored credit models to cater to the unique needs of the renewable energy, SMR, and MSME sectors, while prioritizing risk management and supporting India's green growth agenda, as instructed by the Finance Minister.
| Sector | Focus of Credit Model | Key Directive/Approach ||-----------------|----------------------|-------------------------|| Renewable Energy | Innovative financing, robust risk assessment, long-term lending | Prioritize lending, risk management, sustainability || SMR | Project-based lending, financial structuring, long gestation projects | Support homegrown SMRs, tailored credit models || MSMEs | Streamlined assessment, digitalization, fostering small business growth | Strengthen new credit assessment model, reduce bureaucracy, bolster MSME integration into the formal economy |
- Finance Minister Nirmala Sitharaman has outlined the need for public sector banks (PSBs) to create tailored credit models for renewable energy, small modular nuclear reactors (SMRs), and Micro, Small, and Medium Enterprises (MSMEs).
- For the renewable energy sector, PSBs are required to focus on innovative financing, robust risk assessment, and long-term lending to support growth and sustainability in India's energy sector.
- To assist in the development of homegrown SMRs, PSBs are instructed to adopt project-based lending, financial structuring, and long gestation projects.
- In response to the minister's directive, PSBs are working to strengthen the New Credit Assessment Model for MSMEs, aiming to reduce bureaucracy, streamline capital access, and facilitate digital solutions for small businesses, ultimately fostering their integration into the formal economy.
