Finance Minister Pranab Mukherjee has warned the state-run banks against deteriorating asset quality and called for better professional supervision. "The Reserve Bank of India has recently advised selected banks to take necessary steps for appropriate NPA management," he said at a Bank of India function on Monday.
The gross NPA ratio of public sector banks as of March 2012 stood at 3% of the gross advances as compared to 2.25% a year ago.
Mukherjee said banks have to tread cautiously on the risks confronting the banking sector, especially risks arising out of asset quality, market volatility and global down turn. "One of our major concerns is the deteriorating asset quality in the banking sector as a whole where NPAs have grown at an uncomfortable rate in the past couple of years," he said.
Mukherjee pointed out that net NPAs of the Bank of India have increased from Rs 1,945 crore (0.91%) in March 2011 to Rs 3,656 crore (1.47%) in March 2012.
"Bank of India needs to tighten its belt not only to arrest NPA but also to reverse the trend of asset quality deterioration through better professional supervision," he said.
But financial services secretary, DK Mittal said that the situation is not that grim. "RBI issues advisory from time to time. There are some sectors where there is stress but banks are working hard on the recovery process," he said. Mittal said that the increase in bad loans is because banks have shifted to system generated NPAs. "The increase (once they shifted to a system generated NPAs) in bad loans was to be expected but these all are not bad debts," he said.
The data, however, shows that bad loans have been on a rise, worsened by the economic situation. While only 12% of the loans slipped into NPAs till March 2012, around half of the outstanding restructured loans were added in 2011-12.
The finance minister also stressed on the importance of financial literacy along with financial inclusion. Mukherjee said that the financial illiteracy may lead to economic gains cornered by the financially literate. "Thus along with financial inclusion financial literacy is an important plank in nation building," he said.
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