He said the "stress" in the economy is reflected in the increasing NPAs and they will come down once the economic situation improves. He also said a bit of handholding is required for the stressed sectors.
The finance minister said banks are obliged to follow RBI guidelines regarding recovery of loans.
Referring to concerns of members on use of muscle men by banks for recovery from poor people, Chidambaram said he has asked the heads of the banks that recovery must be done in a "respectful manner".
The minister said he will again tell banks to be compassionate in recovery from poor borrowers. If specific cases of use of muscle men is brought to notice, "severest action" will be taken, he said.
Besides, "no special favour" will be shown to large borrowers by banks in recovery of loans, he said. "I will not allow" banks to give special favours to large borrowers."
Banks are required to monitor their NPAs and take steps to bring them down through upgradation and recovery among others. RBI also monitors the NPA levels in banks.