Against the backdrop of rising interest rate regime, further deterioration of asset quality cannot be ruled out completely, the Minister of State for Finance, Mr Namo Narain Meena, said here on Friday.
Delivering the inaugural address at Bancon 2011, he said though the gross non-performing assets (NPAs) of commercial banks increased from 2.35 per cent in March 2011 to 2.52 per cent in June 2011, “the overall trends do not indicate any systemic problem”.
Another area of much discussion in the banking sector globally and in India is Basel III capital adequacy proposals and its implementation, he said. “So far as the implementation of Basel III norms in India is concerned, availability of adequate amount of capital, both in terms of quantity and quality, provides significant comfort to begin implementation of the new framework according to the time schedule fixed by the Basel Committee on Banking Supervision.”
However, a few banks could come under pressure and going forward, the capital requirements, including equity, are likely to be substantial for supporting the high GDP growth, he explained.
The credit to GDP ratio, which is at 55 per cent, would increase substantially on account of structural changes in the economy including financial inclusion programme and increase in loan requirements from credit-intensive sectors. The government is also focussing on infrastructure financing by banks, said Mr Meena.
He also urged banks to ensure that credit flow to the MSME sector improved. In 2007-08, the MSME segment received only 11 per cent of the non-food credit, and after three years too, it remained at the same level, he pointed out. Even though the RBI has mandated 20 per cent year-on-year growth in credit to the micro and small enterprises, “only 38 of the 81 non-RRB scheduled commercial banks have attained the target”, he said.
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