Bad loans are biggest challenge facing public sector banks, says FM

Concerned over rising non-performing assets, Finance Minister P Chidambaram on Wednesday asked public sector banks to focus on recovery of bad loans, which happen to be high among large corporate accounts.

Addressing a press conference after reviewing performance of PSU banks, he also said that credit disbursal to medium-sized industry has declined and was only "satisfactory" in the agricultural sector.

"Biggest challenge facing the public sector banks is NPAs and their asset qualities," he said, adding that a large part of the meeting with banks' chiefs was focused on bad loans and the steps needed for the recovery.

Pointing out that NPAs were "high in large corporate sectors" and small industries, although they were down for the real estate segment, Chidambaram said banks have been told to focus on recovery.

NPAs or bad loans of PSU banks rose by 28.5 per cent from Rs 1.83 lakh crore in March, 2013 to Rs 2.36 lakh crore in September last year.

The minister also said the banks recovered Rs 18,933 crore (Rs 189.33 billion) worth of bad loans during the April-December period.

Banks have been monitoring their top 30 bad loan accounts for quite some time now.

To a specific query regarding the bad loans with United Bank of India (UBI), he said the issue would be separately discussed with RBI Governor Raghuram Rajan on Friday.

Chidambaram, however, said the UBI has managed to recover Rs 1,200 crore (Rs 12 billion) in January and February.

When asked about the curbs on import of gold, he said the government would revisit the customs duty only after factoring in the final Current Account Deficit (CAD) numbers for the 2013-14 financial year.

Chidambaram held the 'Quarterly Performance Review Meeting' with the Chief Executive Officers (CEOs) of state owned banks and financial institutions.

The government, Chidambaram said, will continue to provide capital support to banks, but the lenders are expected to focus on profitability.

That apart, the Finance Minister said the government will convene a meeting of telecom service providers and the Indian Banks' Association to discuss measures to increase the penetration of mobile banking services in the country.

He also said the model code of conduct, which came into force today following the announcement of general elections, will not affect the process of issuance of new banking licenses by the Reserve Bank.

Besides, he clarified that the Foreign Investment Promotion Board (FIPB) will continue to take decisions on investment proposals and the government will not come to a halt because of the announcement of Lok Sabha elections.