Finance ministry concerned over rising bad loans and wants a variety of actions to check these; Pranab to meet financial institutions’ chiefs on Tuesday to discuss the issue

Concerned at the spurt in bad loans of public sector banks (PSBs), the Union finance ministry has asked them to clearly turn down requests for more loans or facilities from wilful defaulters and to also bar promoters of these companies from getting institutional finance to float new ventures for five years.

Banks and other financial institutions should make formal complaints against auditors found negligent or deficient in auditing the books of borrowers with the accounting regulator, The Institute of Chartered Accountants of India, said a ministry official.

To check fresh slippages in recovery of dues, banks have been advised to devise a strategy for minimising non-performing assets (NPAs) and diversifying their portfolio by sticking to the limits prescribed for individual borrowers, as well as industries or sectors. A system will be put in place for regular review of credit quality to identify problems areas at an early stage.

Gross NPAs of all PSBs stood at 3.1 per cent of their total advances in March 2012, against 2.31 per cent at the end of March 2011. This was significantly higher than the NPAs of old and new private sector banks at 1.71 per cent and 2.18 per cent of advances in 2011-12, respectively.

State Bank of India, saw its gross NPAs rising to 5.22 per cent of advances last year, followed by Central Bank of India (3.93 per cent) and UCO Bank (3.73 per cent). Oriental Bank of Commerce and three associate banks of SBI also saw over one percentage point increase in their NPAs last year.

Going forward, banks may possibly face some further deterioration in asset quality if credit growth slows down,” said a ministry note.

“Despite writeoffs, gross NPAs have continued to rise significantly. Further, banks have restructured a large number of accounts and in case these restructurings do not lead to the desired turnaround, there could be further accretion to NPAs.

“Going forward, banks may possibly face some further deterioration in asset quality if credit growth slows down,” said a ministry note.

These issues are likely to be widely debated in the meeting of Finance Minister Pranab Mukherjee with chiefs of banks and financial institutions on Tuesday.

The NPAs increased on two counts. First, slowdown in the economy led to accretion of bad loans, while recovery of existing NPAs became difficult in some of the stressed sectors.

Second, banks moved to a system-generated NPA recognition regime, leaving very little scope to conceal bad assets.

The ministry wanted the lenders to ensure the recoveries were followed “ruthlessly”, so that at least 20 per cent of the held-up amount comes to banks in each quarter.

The ministry recently suggested that banks consider forming consortiums in case of lending to large projects.

If such a loan becomes an NPA in one bank, then all lenders in the consortium should treat it as a bad loan, the ministry had said.

Earlier this week, it had asked Debt Recovery Tribunals to suggest ways to expedite the unlocking of resources of various banks, stuck in the form of NPAs. Mukherjee had said there can be no lending unless there is recovery and the government had advised banks to closely monitor their NPAs. (Business Standard)