Terming higher bad debts as a ‘legacy’, the Finance Ministry on Thursday declared that “things will change now.” The Ministry told public sector banks to appraise loan proposals without “fear or favour”.
Bad debts (non-performing assets or NPAs) of public sector banks (PSBs) rose sharply to 5.32 per cent as on September 30, 2014, against 4.82 per cent on September 30, 2013. This was one of the key issues discussed in the quarterly review meeting of public sector banks chaired by Finance Minister Arun Jaitley.
After the meeting, Jaitley said due to the economic slowdown one area of concern has been the rise of NPAs over the last two to three years. He said that proactive steps to be taken to ensure NPAs come down have been discussed. He asked bankers to take necessary corrective measures to bring down NPAs and told them to “honestly” analyse the reasons for the same.
Later, a senior Finance Ministry official termed NPAs a “legacy issue” and claimed that things would change now.
“These are all legacy issues. Now, when the economy looks up, when new portfolio is generated by banks, these percentages will start coming down,” the official added.
He said banks had been told to “go ahead and do your appraisal without fear or favour from anybody. We are saying, do it objectively, do it professionally. So, once the quality of lending improves, this issue of NPA should not remain.” Lending has slowed down, with the July-September quarter data showing gross advances of public sector banks recording year-on-year growth of 9.06 per cent against 18.8 per cent as on September 30, 2013.
“We have suggested to the banks that proactive steps be taken to support various projects so that credit offtake with regard to these projects picks up in a big way,” Jaitley said.
The Finance Minister told banks that the Government has taken steps to streamline the process of appointment of Chief Executive Officers and Executive Directors of PSBs to introduce objectivity in the process.
This will play a major role in making banks a professional organisation, he added. He said the functioning of PSBs and the decision-making process must be influenced by professional reasons. “Any external influence would be considered a disqualification,” he said.