Worried over rising bad loans, the government has asked state-owned banks to crack the whip on wilful defaulters and initiate penal proceedings against them.

The issue of initiating penal action figured in meetings of the bankers with Finance Minister P Chidambaram.

"It is advised that banks and financial institutions should initiate penal measures against wilful defaulters," said a Finance Ministry note prepared for the meetings of Chidambaram with heads of the PSU banks.

Besides, the PSU bank chiefs were also advised to expedite steps to deal with wilful loan defaulters.

The gross gross NPAs or bad loans of all public sector banks taken together has increased to 4.01 per cent in the second quarter of the fiscal from 3.06 per cent in the year ago period.

The note said penal measures could be "debarring entrepreneurs and promoters of defaulting companies from institutional finance for floating new ventures for a five year period".

In addition, the PSBs have been asked not to grant additional facilities to wilful defaulters.

Further, PSU banks and financial institutions have been asked to file complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India (ICAI), if it is found that the auditors were "negligent or deficient" in conducting audit.

The government has also asked banks to analyse the reasons for fresh slippages in their NPAs and devise a strategy for minimising bad loans.

As per RBI guidelines, banks and financial institutions should ensure limits at individual borrower level as well as industry and sector wise to avoid credit concentration and achieve a diversified portfolio. (Indian Express)