Npa clause of public sector banks likely to be changed
1. NPA Clause of Public Sector Banks Likely to be Changed
The government will reconsider a clause that requires all state-run banks to treat a borrower’s
account as non-performing if a loan to the company by any bank has become a bad asset in the
books of that bank.
Public sector banks, which had a net NPA of 2.12% in December 2012, have already in a
representation to the finance ministry, sought to delete this clause citing increase in the provisioning
amount that has to be made towards such accounts.
“We are aware of the issues that banks are facing. It is being discussed and if required we will
remove the clause,” said a finance ministry official who did not wish to be named. RBI guidelines on
NPAs also state that if the borrower accounts turn NPA with one bank, it will have no affect on the
borrower’s account with another bank.
According to a report by Bank of America-Merrill Lynch (BofA-ML), loan growth of Indian banks
will fall to a 15-year low of less than 13% in the current fiscal. The latest data from RBI shows that
in the last two weeks to June 14, credit growth has slipped by 0.39%.
Bankers have argued that adhering to a common NPA norm will further weaken the banks given that
RBI has already come up with stringent guidelines in June 2013, increasing the provisioning on the
newly restructured account by 300 bps to 5% from June. “There are cases where a company has
taken a loan for a particular project from one bank which has not taken off and hence the account has
turned poor but the same company is keeping its other account standard with most banks,” reasoned
a senior official with Central Bank of India. An executive director with a state run-bank said that the
current regulations stipulated by RBI already cover information sharing among banks. “This was the
basic purpose for which joint lending agreement (JLA) was initiated,” he said.
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