Get cracking on reducing bad loans, FinMin tells govt banks

SHISHIR SINHA : BL :APRIL;2013

Wants NPAs reduced to 1% of total advances by fiscal-end; suggests board-level monitoring of recovery

The Finance Ministry has asked all public sector banks to reduce their bad loans, or non-performing assets, to one per cent of their total advances by the end of the current financial year (March 31, 2014).

A senior Finance Ministry official hoped there will be “significant improvement” in the gross and net NPA position for fiscal 2012-13, which ended on March 31.

Talking especially about the nation’s biggest lender State Bank of India, the official said, it had managed to reduce its NPA by over 1 per cent in March alone.

That still leaves SBI with a fair bit to do to achieve its new NPA target. As of end-December 2012, SBI’s bad loans were at over 6 per cent (gross NPAs) of its advances.

The final figure will emerge when the bank announces its annual financial result for 2012-13.

With the economy registering the lowest growth in a decade, public sector banks have seen their NPAs go up significantly.

According to data collected for a meeting between Finance Ministry and public sector bank officials last month, bad loans with respect to the priority sector, which include agriculture and medium and small enterprises, had gone up during the quarter ended December 31 vis-à-vis the previous quarter.

Interestingly, however, the NPA position in relation to retail and real estate loans improved during the period.

Another highlight is that the top 30 non-performing accounts made up close to half (around 44 per cent) the bad loans of the 19 nationalised banks. While for the SBI group, this was around 19.3 per cent, for public sector banks as a whole they were around 34 per cent.

MULTI-PRONGED PLAN

Banks have been advised to adopt a multi-pronged strategy for loan recovery.

This includes constitution of a board-level committee for monitoring recovery, review of NPA accounts of Rs 1 crore and above by the board of directors, and the top 300 NPA accounts by the management committee of the boards, and guidelines for NPA management as part of an early-warning system.

Apart from restructuring, banks have been advised to initiate penal measures against wilful defaulters.

These include not granting them additional facilities and debarring the entrepreneurs/promoters of defaulting companies from getting institutional finance for floating new ventures for a period of five years.

FORMAL COMPLAINT

Banks have also been asked to lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India, if it is observed that there was negligence or deficiency in the conduct of audit.