Par panel cautions against banks becoming 'drag' on economy

A parliamentary committee today said there is "an urgent need" for banks to reduce their stressed assets lest they become a "drag" on the economy, which is competing with economic superpowers.
The Standing Committee on Finance headed by senior Congress leader and former Union Minister Veerappa Moily in its report tabled in Parliament said NPA issue of public sector banks has remained a "festering problem" and threatening the stability of the banking system itself.
The Committee, the report said, firmly believes that banks ought to have intervened at the "right time" when signs of stress were visible in their loans.

"It is ironical that on one hand the country's economy is competing with economic superpowers and on the other hand, the ballooning NPAs have been eroding the capital and liquidity of banks as also their ability to raise capital in the future.
"The Committee would, therefore, reiterate that there is an urgent need for the banks to reduce their stressed assets and clean up their balance sheets, lest they become a drag on the economy," the report said.
Public banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (NPAs) in the three months ended September 2016.

As on September 30, gross NPAs of public sector banks rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June end.

The 31-member panel further said that despite the efforts undertaken by the RBI vis-a-vis the credit appraisal capability of banks, there still lies lacunae in the technical capabilities of banks for undertaking proper evaluation of projects.
It said reiterated that specially empowered committees at all the three levels -- RBI, banks and the borrower -- should be set up for the continuous monitoring of the status or progress of large loan portfolios.
"The Committee further reiterate that the accountability of nominee Director of RBI/ Ministry on the bank board as well as the CMDs/MDs of banks should also be fixed in the matter," the report said.

The panel expressed unhappiness that government has not acted upon its recommendation that the decisions taken to sanction loans in violation of guidelines be enquired into, responsibility fixed nd suitable penal action taken.
It "particularly desires" that details of cases, where debt to equity norms have been specifically violated should be identified and made available to it.
The panel also reiterated that RBI should have its regulatory role well delinated and, thus, "not have its Director in the Board (s) of the banks as part of their management, as conflict of interest might lead to avoidable laxity".