Take action against loan defaulters: Chidambaram to banks

Concerned over rising bad loans, finance minister P Chidambaram on Wednesday asked banks to focus on top defaulters and take action against them.

Also Read: State-run banks aim to open over 8,000 branches: FM

"You focus on the top defaulters, as well as keep on eye on the top-performing accounts. They are keeping a close watch on the top 30 non-performing accounts in each bank and action  will be taken on the defaulters," Chidambaram said.

He was talking to reporters after meeting the heads of  public-sector banks and financial institutions in New Delhi.
    
Chidambaram said it is the 30 top non-performing accounts which account for bulk of the non-performing assets (NPAs). Non-performing assets of banks have been on the rise for past several months due to slowdown in the economy. The  gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 percent  of the total assets at the end of March, 2013.
    
In light of gross NPAs of PSU banks having risen from Rs 71,080 crore as on March 2011, to Rs 1.55 lakh crore as on December 2012, Chidambaram further said he has asked banks to review their lending rates. "Reduction in base rate will be powerful  stimulus to boost credit growth," he said adding that unless the base rate was cut, interest rates could not be brought  down.
    
While the the Reserve Bank of India (RBI) has reduced the policy rates by 1.25 per cent since January 2012, to prop up  growth, banks have lowered the lending rates  by only 0.30 percent during the period Chidambaram further said the  banks would open over 8,000 new branches this year and hire over 50,000 people.
    
At the meeting with the bank chiefs, Chidambaram reviewed the credit to agriculture, MSMEs, housing, education,  minority communities and also financial inclusion. Chidambaram said while the deposit growth has been modest for the  fiscal ending March 2013, the credit growth has been slow. At the end of March 31, 2013, public sector banks'  deposits grew by 14.91 per cent, slightly higher than the growth rate of 14.4 percent recorded in previous year.

Credit growth at the end of March 31, 2013, was 15.62 which is a decline from the previous year's 17.76 percent. "There is good credit demand from a few sectors — agriculture, small and medium enterprises and retail loans," he  said. In housing there are signs of growth especially in commercial real estate for residential purposes. On the infrastructure front, there are some signs of higher credit demand in road sector, non-conventional energy sector, he added.

"Overall there seems to be some pick up in credit demand, the picture will be clear at the end of second  quarter," he said. When asked about discussion on gold loan with bank chiefs in the meeting, Chidambaram quipped,  "You want gold loans? Chances are there you won't get it."
    
Replying to a query on new bank licences for which 26 entities have applied before the Reserve bank, the finance  minister said "every guideline has to be satisfied". He, however, it is the RBI which will give the licences and  the government will have no say in it.
    
Earlier, he said all banks are compliant with capital norms as per the Basel III requirements. He further said except for  four public-sector banks — IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and Dena Bank — all other have  capital adequacy ratio (CAR) of 8 percent and more. These four banks have CAR of more than 7 percent.