New Delhi: Sources said Finance Minister Nirmala Sitharaman has asked public sector banks (PSBs) to take prompt action in cases related to frauds and willful defaults to reduce bad loans and take steps to accelerate the pace of growth.
In the last six years till the financial year 2021-22, banks have waived bad loans worth Rs 11.17 lakh crore from their books. Non-performing assets (NPAs), including those assets in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the concerned bank through a write-off.
In a recent meeting with heads of PSBs, the Finance Minister urged them to put in place strong risk management practices and focus on mitigating cyber security risks. Sources said that it was also emphasized during the meeting that banks should have a robust internal audit framework and follow the warnings of internal policies.
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Some of the challenges highlighted during the meeting included declining market share in advances and raising low-cost deposits. It was also pointed out that PSBs should prepare for increased competition for deposits due to the merger of HDFC Limited with HDFC Bank. Now home loan customers of HDFC Limited will be tapped by HDFC Bank for retail banking.
Another area of concern was the pressure on net interest margin of PSBs due to higher interest rate regime. Banks have been asked to focus on high-yielding advance categories with proper risk management and enhancing fee income.
With a view to further accelerate the resolution of stressed assets in the system, the framework on compounding settlement and technical write-off was released by the Reserve Bank of India last month. The framework provides clarity on the definition of technical write-off and provides broad guidance on the process to be followed by regulated entities while undertaking technical write-off.
In addition, it gave guidance on important process-related matters, including board oversight, delegation of power, reporting mechanisms and a cooling off period for common cases of settlement. The penal measures currently applicable to borrowers classified as frauds or willful defaulters will, however, continue in cases where banks enter into settlement agreements with such borrowers.