Finance Minister P. Chidambaram Saturday tried to calm the jittery financial sector stating that the rise in non-performing assets (NPAs) of public sector banks (PSBs) is marginal and not alarming.
NPAs are a sum of those loans that are vulnerable to go bad or default out of the total lending a bank has done. The PSBs’ total NPAs had gone up to 3.3 percent in 2011-12 from 2.3 percent in 2010-11.
According to some estimates, the gross NPAs of PSBs grew by Rs.39,000 crore in 2011-12, compared to only Rs.500 crore in the case of private banks. The reason for such a spike was attributed to rise in the corporate debt restructuring (CDR) in sectors like aviation, real estate, power and telecom due to upward movement in interest rates, volatile currency and commodity markets.
With the downturn in the economy and some parts of the country experiencing drought, there are fears the NPAs would rise, affecting the health of the PSBs.
“NPAs have risen marginally for the year ended March 2012. The situation is not alarming. NPAs reflect a slowdown in the economy, but it is very marginal,” Chidambaram told reporters here after meeting heads of PSBs.
“For all the public sector banks, their NPAs for the year ended March 2012 stood at 3.17 percent. I am confident as the economy picks up we will be able to improve the NPAS. Their is enough profit for taking care of gross NPAs.”
According to Chidambaram, he has reviewed the performance of loans given to the small and medium enterprises (SMEs), real estate and farm sector. He emphasised that there was no danger of farm loan default due to a drought-like situation.
“Sixty percent of the farm loans have availed the three percent interest subvention scheme that we provide over the nominal interest rate of seven percent. This means that 60 percent of all farm loans do not default,” Chidambaram said.
The finance minister assured that all PSBs have been asked to aid farmers in drought-hit areas and that all possible credit will be provided to them.
The agriculture credit target for the current fiscal stands at Rs.575,000 lakh crore, which is expected to cross the Rs.6 lakh crore mark.
The Finance Minister pointed out that there was a need for a increasing the reach and access of banking services to all, as only 58.7 percent of all house holds in the country have access to banking service either though a branch or a banking correspondent.
There is even a greater need to mobilise savings, said Chidambaram, pointing out that there is Rs.11 lakh crore in cash with people and this money should be stored with the banking system.
The PSBs have been given a target to double the number of ATM machines in the country from the current 63,000 in the next two years and that these machines should also be equipped to accept cash to mobilise savings.
Chidambaram added that the country’s financial system is strong. “It was all together a re-education for me about the state of our banking industry. I am very proud that the backbone of our economy is the financial sector and the spine of that backbone is our public sector banks.”
Saturday’s meeting was the first interaction Chidamabram had with the PSB chiefs since he took charge of the finance ministry Aug 1, 2012.
