Big borrowing once rejected may always face rejection-Business Standard
FinMin plans multi-pronged strategy to crack down on non-performing assets
Vrishti Beniwal | New Delhi
May 23, 2014
The next time a government bank rejects your big loan and you think of applying with another state-run lender, there is a good probability it would be turned down there too. This is because the finance ministry is planning a joint forum of public sector banks to share such information so that bad loans don’t rise.
The government is devising a multi-pronged strategy to tackle the problem of non-performing assets (NPAs) as it will be one of the key priorities of the new government. The Bharatiya Janata Party (BJP) has said in its manifesto that it would take necessary steps to reduce NPAs in the banking sector.
“We have to see some cohesion among PSBs. There will be a joint forum to share information for large cases. If one bank says no to a loan, other banks should be aware of it. Then it’s up to the bank whether it still wants to extend the loan,” said a finance ministry official requesting anonymity.
The forum will help banks get readily-available information in cases where a particular bank rejected the loan because fake documents were submitted, or the value of the property was inflated.
“The government wants a joint forum because it will help in better sharing of information among state-owned banks,” said Ashwini Kumar, chairman and managing director, Dena Bank, adding the forum would discuss only large cases above a particular limit to be decided later.
The government is devising a multi-pronged strategy to tackle the problem of non-performing assets (NPAs) as it will be one of the key priorities of the new government. The Bharatiya Janata Party (BJP) has said in its manifesto that it would take necessary steps to reduce NPAs in the banking sector.
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“We have to see some cohesion among PSBs. There will be a joint forum to share information for large cases. If one bank says no to a loan, other banks should be aware of it. Then it’s up to the bank whether it still wants to extend the loan,” said a finance ministry official requesting anonymity.
The forum will help banks get readily-available information in cases where a particular bank rejected the loan because fake documents were submitted, or the value of the property was inflated.
“The government wants a joint forum because it will help in better sharing of information among state-owned banks,” said Ashwini Kumar, chairman and managing director, Dena Bank, adding the forum would discuss only large cases above a particular limit to be decided later.
Gross NPAs of PSBs stood at 4.44 per cent at the end of March 2014, lower than 5.07 per cent at the end of December 2013. But it is still very high and concerns remain due to a weak economy. The situation may become problematic if there is an adverse effect of monsoon on the crop.
“The government is keeping a close watch. NPAs and recovery are going to be the focus in the next few quarters. We will review the corporate debt restructuring mechanism, consortium lending, and multiple lending. A lot of delay is happening. So we have to speed up the process,” said the official.
The finance ministry has also asked the banks to strengthen their relationship banking so that they have some idea when a borrower is likely to default. Formal instructions in this regard may be issued soon.
“Relationship banking is missing today. Banks should maintain live contact with the borrower after the disbursement of the loan. You realise there is a problem when they stop making the payments,” he said.
Gross NPAs of PSBs stood at 4.44 per cent at the end of March 2014, lower than 5.07 per cent at the end of December 2013. But it is still very high and concerns remain due to a weak economy. The situation may become problematic if there is an adverse effect of monsoon on the crop.
“The government is keeping a close watch. NPAs and recovery are going to be the focus in the next few quarters. We will review the corporate debt restructuring mechanism, consortium lending, and multiple lending. A lot of delay is happening. So we have to speed up the process,” said the official.
The finance ministry has also asked the banks to strengthen their relationship banking so that they have some idea when a borrower is likely to default. Formal instructions in this regard may be issued soon.
“Relationship banking is missing today. Banks should maintain live contact with the borrower after the disbursement of the loan. You realise there is a problem when they stop making the payments,” he said.
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