The finance ministry is likely to ask public sector banks to stick to a time-bound process of loan approvals, and issue guidelines that specify timeframes for sanctioning or rejecting various kinds of loans.
At present, there is no uniform timeframe for lenders to process loan applications though banks have internally framed their own timeline for approvals.
The move is seen as a part of tightening accountability norms and strengthening the banking system, which is under a cloud in the wake of the Syndicate Bank scam and mounting bad loans — loans which are not being repayed.
"To bring in a change in the system, fresh guidelines may be issued … banks will have to approve or decline loans; the process has to be completed in a time bound manner, this is aimed at streamlining procedures while bringing in more transparency," GS Sandhu, secretary, financial services told HT.
While corporate loans could take more than a month to 45 days to get approved, home loans can take anywhere between 10 days to 21 days.
The government is looking into various issues to see how loopholes can be further plugged. "By making the loan approval process time bound, it would be clear within a stipulated time whether it has been accepted and after that there will be limited scope of tweaking it," a source said.
"Our effort is to clear loan applications at the earliest, but they often get stuck due to incomplete paperwork from the borrower's side and in such cases it could take as long as a month, but it is unfair to put the blame on banks," claimed a senior executive of a large public sector bank.
Banks have already been instructed to crack down willful defaulters — high-value loan defaulters who are in a position to repay. The role of banks in sanctioning loans to people and companies with bad credit history, is also under the scanner.
Non-performing assets in the last fiscal touched Rs. 2,45,809 crore up from Rs. 1,83,854 crore in 2012-13 and Rs. 1,37,102 crore in 2011-12.