Govt puts PSU banks on alert over bad loans
The government has asked public sector banks to keep a close watch on the level of bad assets. As per official data, the number of corporate debt applications have shot up since September, 2008, which could push up the level of bad assets in 6-12 months.business Updated: Jun 14, 2009 21:38 IST
The government has asked public sector banks to keep a close watch on the level of bad assets. As per official data, the number of corporate debt applications have shot up since September, 2008, which could push up the level of bad assets in 6-12 months.
The issue was discussed in the recent meeting between Finance Minister Pranab Mukherjee and PSU bank chiefs.
“While there would be no immediate emergence of NPAs (non performing assets or bad assets), in the current quarter due to facility of special restructuring allowed by the RBI, going forward, the slowdown of the economy and difficulties in certain sectors may result in fresh accretion of NPAs after six to 12 months,” the pre-meeting circular, which was sent by the government to the PSU banks, said.
The government may look at enhancing the effectiveness of the debt recovery tribunals and the The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, which allows empowers banks/financial institutions to recover their non-performing assets without the intervention of the court in a bid to keep the level of bad assets under control.
PSU banks have initiated a process of reviewing all high value NPAs at their respective board levels. A weekly system of review of stressed assets has also been initiated by the banks to prevent the rise of NPAs.
Not yet time for consolidation?
KC Chakrabarty, deputy governor designate, Reserve Bank of India said that time is not yet ripe for consolidation of public sector banks. “Consolidation is key and we do require strong banks, but the time has not come, we need to wait for about three to four years,” he said.
At a recent meeting with bankers, finance minister Pranab Mukherjee had stressed the need to bring in consolidation in public sector banks. Chakrabarty said that at present, “financial inclusion is more important than consolidation.”
Going forward, consolidation would be crucial as it would provide capital efficiency to the banks, he clarified.