Moneycontrol
Apr 24, 2012 06:32 PM IST | Source: PTI

High rates, slow growth impacted loan repayments: FM

High interest rates and slow economic growth in 2011 has adversely impacted the repayment capacity of borrowers, Finance Minister Pranab Mukherjee said today.


High interest rates and slow economic growth in 2011 has adversely impacted the repayment capacity of borrowers, Finance Minister Pranab Mukherjee said today. "Increase in interest rates and slowing economic growth during 2011 have adversely impinged on the repayment capacity of all categories of borrowers, especially small and medium enterprises," Mukherjee said in a reply to the Rajya Sabha. Most of the public sector banks registered a rise in non-performing assets as they switched to system based recognition of NPAs during the June-September, 2011 quarter, he said.


The Minister said that banks could restructure such accounts if it is done within the Reserve Bank's framework. "However, in case restructuring is done outside the RBI's framework, the asset classification benefit is not available to the banks," Mukherjee said. Restructuring is a case of default and such accounts are considered impaired according to international prudential and accounting norms, he added. Mukherjee also informed the house that relaxation in provisioning, asset classification and risk weight norms are not taken in positive light in the international agencies, including rating agencies. "RBI is generally not in favour of relaxing its prudential guidelines on relaxing of advances," he added.

Earlier, Mukherjee had said that high interest rates and lower economic growth impacted the repayment capacities of borrowers and pushed up the non-performing assets (NPAs) of banks to Rs 1.27 lakh crore during April-December, 2011. Banks' bad loans was Rs 94,084 crore in 2010-11, Rs 81,813 crore in 2009-10 and Rs 68,220 crore in 2008-09, the Finance Minister had told the Lok Sabha in a written reply.

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