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Rethink handling of NPAs, Finance minister P Chidambaram tells PSBs

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Finance minister P Chidambaram offered a give-and-take proposition to public sector banks (PSBs) on Tuesday, wherein the government would keep its Budget pledge of infusing additional capital of Rs 14,000 crore. And, as if in return, PSBs need to improve their performance and drastically bring down the level of their non-performing assets or NPAs.

PSBs, he said, will need to have separate verticals for recovery of loans. In the wake of the rising NPAs, the government is tracking the top 30 such accounts of every PSB. Noting that bulk of NPAs are over Rs 1 crore, he warned PSBs not to write off even a single rupee.

Addressing chairpersons of PSBs, Chidambaram said, “NPA is a function of slowdown in the economy. Since 2000, gross NPAs have grown 14%. I have told all banks to have separate verticals for recovery. No bank should technically write off a single rupee. We have to recover the amounts. The recoveries are taking place but not as much as we expect to recover. The bulk of the people do not wilfully default. They default because of circumstances. Once the economy and cash flow pick up, they will (re)pay.”

Observing that the defaulters often try to duck recovery, he said, “Banks have been advised to empower or set apart an officer of senior rank, at least of general manager rank, to look at recovery, especially recovery from written-off accounts... We will try to recover as much as possible from the written-off accounts.”

The amount of the capital infusion in the PSBs – Rs 14,000 crore – was finalised on Tuesday. Finance ministry sources said that PSBs may be allowed to raise additional funding through qualified institutional placements or QIPs. In an earlier meeting, Chidambaram had said all but four PSBs meeti the Basel-III requirements of re-capitalisation.

Indian Overseas Bank, IDBI Bank, Bank of Maharashtra and Dena Bank have their Tier I capital below 8%. These banks were asked earlier to submit their plans for capitalisation.

Credit growth is showing a satisfactory trend, said Chidambaram. Home loan disbursements in the first quarter (Q1; April-June) are up 42% on-year, he said. In Q2, the disbursements grew up 61% on-year. “Banks have said that this year also, agricultural credit will exceed the target of Rs 7 lakh crore,” Chidambaram said.

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