The Finance Minister, Mr Pranab Mukherjee, has cautioned banks that rising non-performing assets (NPAs) could lead to high lending rates and in turn hamper credit flow to productive sectors.
Speaking at the Annual General Meeting of the Indian Banks' Association here on Tuesday, Mr Mukherjee said the recent balance-sheets of some banks showed that their NPAs had risen noticeably.
High real lending rates discourage new and credit worthy borrowers from seeking loans from banks, he said.
“The increase in the level of NPAs has a number of negative consequences. From the banking system's point of view, high loan loss provision reduced net profits and this tends to put pressure on lending rates'', he said.
Despite a higher-than-anticipated GDP and manufacturing growth during 2009-10, both credit and deposit growth were much lower at around 17 per cent last year. Credit growth for the current year is projected at 20 per cent by the RBI and banks will have to step up their performance to ensure that this is achieved.
Furthermore, the sectoral flow of credit should be such that the productive requirements of growing sectors of the economy are adequately taken care of while maintaining the quality of assets.
The challenges before the banks now include an uncertain pace of global recovery, exit policy, containment of NPA levels and higher provisioning norms.
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