Public sector banks should deal strictly with wilful defaulters to check non-performing assets (NPAs) while being sympathetic towards borrowers facing difficulties, Finance Minister P Chidambaram said today.
"Genuine defaulters and wilful defaulters need to be dealt with separately. We have to be strict with wilful defaulters," Chidambaram said in an address to the Parliamentary Consultative Committee attached to his Ministry.
He said that bankers have been told to be sympathetic and have a "humane approach" towards genuine defaulters.
"This is time for hand-holding of borrowers who are facing difficulties, especially industry," he added.
The NPAs of public sector banks rose to 3.84 per cent of advances at the end of March from 2.32 per cent in March 2011.
The NPAs of banks in the agriculture sector was at 5.46 per cent, in MSME at 5.82 per cent, in the corporate sector at 3.44 per cent, in retail loans at 2.37% and real estate at 1.92 per cent.
The Finance Minister said levels of NPAs are critically dependent on the performance of the economy. If economic growth was at 8 to 9 percent, then NPAs would be low.
Chidambaram further said banks must ensure that credit flows to every sector of industry.
He further said banks need capitalisation to meet their enhanced lending, which is increasing every year. This year, the government has made provisions of Rs 14,000 crore for bank recapitalisation.
Chidambaram said banks normally make their own arrangements to meet capital requirements, both through their own resources and from the market.
The Finance Minister informed the Committee that all public sector banks are following Basel III norms (global capital adequacy norms) and that "our capital and provisioning requirements are stricter than Basel III norms." Earlier, members of the Committee made suggestions about recovering dues from wilful and genuine defaulters and how to deal with different NPA cases, according to a statement.
Some members spoke of a softer approach by banks towards genuine defaulters such as farmers and promoters of MSMEs as they are vulnerable to external factors beyond their control.
Members raised the issue of misuse of corporate debt restructuring and downgrading of banks by rating agencies due to NPAs or other factors.
Members of the Consultative Committee who attended the meeting included Anto P Antony, Rajkumari Ratna Singh, Saugata Roy, N K Singh, Shantaram Naik, Murli S Deora (Permanent Special Invitee).
The meeting was also attended by both Ministers of State for Finance, Namo Narain Meena and Jesudasu Seelam.