The government has asked the public sector banks (PSBs) to focus on their stress test methods amid the volatile environment in the global financial markets. Finance minister Niramala Sitharaman on March 25, met with managing directors and CEOs of PSBs to review performances of the banks. The meeting was also attended by Union Minister of State for Finance Dr Bhagwat Kishanrao Karad and Dr Vivek Joshi, the secretary of the department of Financial Services (DFS). 


Bloomberg in a report citing officials, said that the government has asked state-owned banks to focus on their stress testing method. It also said that none of the 12 PSBs have built comprehensive stress testing models on scenarios in line with recommendations.


The official told Bloomberg that the firms have not implemented models, which include more than 1,000 scenarios such as the extent of historical data, number of risk types, and rare events. 


The official said so far, only one bank has incorporated more than 30 macro indicators, including the GDP, into its model. Only half of the banks are conducting stress testing at the micro-cluster level, which took into account product loan categories, demographic details, and loan characteristics, the officials added.


The report also said that PSBs have been losing deposits growth as well as market share across small and medium businesses and in the retail and agriculture segments. The share of deposits at these banks dropped from 66 per cent in March 2019 to about 62 per cent in December 2022. 


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In June last year, Finance minister Niramala Sitharaman said that banks will come up with stress-testing models that would help them respond to customer needs and competition.


The PSBs review meeting took place at a time when the US banking sector is unstable as a result of Silicon Valley Bank's recent failure and the subsequent contagion of other banks.


The Silicon Valley Bank, a well-known international lender for technology entrepreneurs, failed on March 10 as a result of a bank run.