IT companies will stand to gain from a recent government diktat to PSU banks. The government has told PSU banks that henceforth, their banking software should determine whether a loan is a non-performing asset or not.
Several banks already use technology for asset classification. The parameters for classification of a loan as standard or sub-standard are fed into the software and the list of bad loans is generated automatically. However, for some banks, a part of the data is generated manually.
In a recent letter to all PSU banks, the government has indicated that there are so many parameters that a bank has to take into account while classifying an account as bad loan. As a result there are instances when banks are forced to take up the calculation of bad loans manually.
Bankers say the government wants to get rid of the element of subjectivity from asset classification. This subjectivity is there only when banks generate data manually. To avoid this, the Centre has been trying to get banks to move to electronic form. According to a senior banker from a PSU bank, most banks will have to fine tune their software in order to match the government’s requirement.
Barring a few banks, all PSU banks have brought their entire branch operations within a core banking solution (CBS) — wherein all data created by the bank is saved in a centralised server. “RBI often tweaks asset classification norms and since the software cannot be immediately fine-tuned, banks have to generate some data manually,” said a senior bank official.
Bankers say the government directive stems from concerns from some quarters that some banks do not calculate their NPAs accurately and thus the government does not get the real picture on the recovery and on stressed assets. The diktat will, however, not apply for private and foreign banks. The new generation private and foreign banks are already on an advanced technology platform.
Commercial banks reported gross NPA of Rs 68,084 crore in the financial year 2009-10. Of this, PSU banks reported gross NPA of Rs 44,042 crore. Meanwhile, 81% of all PSU bank branches are under CBS as on March 2009.
Banks such as the State Bank of India, Punjab National Bank, Union Bank of India, Corporation Bank, Oriental Bank of Commerce, Indian Bank and Vijaya Bank have all their branches under CBS, making it easier for them to generate NPA data online.
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