The Finance Ministry is worried that banks' bad loans will go up, especially if credit growth slows down.
The gross non-performing assets of public sector banks have exceeded three per cent for fiscal 2011-12. NPA management will be one of the key issues at a meeting the Finance Minister has called with chiefs of public sector bank and financial institutions on June 12.
The agenda note for the meeting says: “As informed by the Reserve Bank of India, at system level, new accretion to NPAs has been much more than the reduction on existing NPAs due to lower level of upgradation and recoveries. Also, despite write-offs, gross NPAs have continued to rise significantly.”
When Rejigs don't help
The note added that banks have restructured a large number of accounts and, in case these restructurings, including those done under the corporate debt restructuring (CDR) mechanism, do not lead to the desired turnaround, there could be further accretion to NPAs.
Going, forward, banks may face further deterioration in asset quality if credit growth slows.
The note mentions that gross NPAs increased more for the SBI group than other nationalised and private sector banks. In fact, SBI is on top in the list of gross NPAs for fiscal 2011-12. Smaller nationalised banks have done better in managing NPAs.
The agenda notes the various tools available for prevention of new NPA accretion. These include checking fresh slippage and tough steps against wilful defaulters. The RBI's master circular, issued last year, talks about penal measures, not granting additional facilities, debarring promoters of defaulter companies from floating new ventures and complaints against the defaulters' auditors.
The note says: “It has to be ensured that the recoveries are followed up ruthlessly to ensure at least 20 per cent of the amount is recovered in each quarter starting from the 4th quarter of 2011-12. Similarly, the earlier practice of obtaining post-dated cheques may be replaced with the system of ECS debit authorisation.”