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Sticky assets top bank review agenda

Calcutta, Oct. 11: The Union finance ministry will be meeting the chairmen of nationalised banks tomorrow to review their performance and take stock of the non-performing assets (NPAs).

This is the first time that the finance ministry is conducting such a review after Jaswant Singh took over the reins from Yashwant Sinha as the finance minister.

The meeting will be presided over by Union minister of state for finance Anandrao Adsul. Finance ministry sources said four issues will broadly be discussed—non-performing assets, priority sector lending, capital adequacy ratio and productivity of banks.

The banking industry is saddled with NPAs of more than Rs 60,000 crore. “The recovery process is not quite satisfactory. It should be better. Some banks have huge NPAs, which need to be reduced immediately. What is more, there have been fresh additions to them. Banks have to be more cautious on lending. The ministry will also get a clearer picture of banks for the first half of the current year,” sources said.

A major area of concern for the finance ministry is the low volume of priority sector lending. Under guidelines issued by the RBI, the ratio of agricultural advances to net bank credit should be 18 per cent. But for most public sector banks, the figure is around 14-16 per cent.

A disaggregated picture in respect of outstanding agricultural loans reveals that direct finance disbursed to marginal farmers has been slowing down in recent years. “The government has sharpened its focus on agricultural development. In view of this, it has become necessary for banks to increase their share of lending to the priority sector,” ministry sources said.

Given the chances of priority sector loans turning into bad assets, bankers have become cautious about lending to these ventures. “Sectors such as agriculture are subject to the vagaries of monsoons. A good harvest should mean buoyant incomes and better repayment ability. However, when monsoons fail or the harvest is dull, the ability of farmers to repay diminishes, adding to bank’s NPA burden,” ministry sources said.

Capital adequacy ratio is another area that will engage the attention of the ministry. “The banking industry has to achieve 12 per cent capital adequacy by March 2004. A handful of banks have already achieved it. But some are lagging behind. The ministry will ask banks about the steps they are taking to attain the required CAR by March 2004,” ministry sources said.

Another subject that will be discussed is the productivity of the banks after VRS. “Banks have got sufficient time to increase their productivity after the VRS was offered. We would like to review the productivity now and suggest steps to enhance it,” the sources said.

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