Bad loans of banks set to rise, says FM

Indicating a tough year ahead for the banking sector, Finance Minister P Chidambaram on Wednesday said non-performing assets or bad loans of public sector banks are going to be higher this fiscal that ends on March 31 than what they were last year.

“Biggest challenge facing the public sector banks is NPAs and their asset qualities,” Chidambaram, who huddled with public sector bank chiefs for close to three hours and devoted most of the time discussing bad loans, told reporters.

The minister said that NPAs are presently high among larger corporates and small industries, although they were down for the real estate segment. Banks, he said, have been asked to focus on recovery.

The gross non-performing assets of 40 listed banks increased 36.9 per cent to Rs 2.22 lakh crore in September 2013 from Rs 1.62 lakh crore a year earlier, finance ministry had informed Parliament last month.

The minister, however, said the banks recovered Rs 18,933 crore worth of bad loans during the April-December period.

Non-performing assets, also called non-performing loans, are loans made by a bank or finance company on which repayments or interest payments are not being made on time.

Banks usually treat assets as non-performing if they are not serviced for some time. If payments are late for a short time, a loan is classified as past due. Once a payment becomes really late (usually 90 days) the loan classified as non-performing.

NPAs of public sector banks have growing at a faster rate of late. A study by industry chamber Assocham recently said reasons behind rising NPAs include faulty credit management, lack of professionalism in the workforce, unscientific repayment schedule, misutilisation of loans by borrowers, lack of timely legal solution to cases, political interference at local levels and waiver of loans by the government.

On capital support by the government for banks, Chidambaram said, “The government will provide additional capital into the banks... banks must also rely upon a part of their earnings, retain the earnings and infuse it as fresh capital.

Therefore, it is important to address the issue of profitability of banks...they should be able to retain substantial part of the profit which can be infused as capital,” he said.