With gross non-performing assets (NPAs) of state-owned banks crossing 4% of advances, the government has asked them to initiate penal actions against wilful defaulters.
The penal steps against wilful defaulters include debarring them from fresh loans for floating new ventures for a period of five years, sources told FE.
At a meeting with heads of public sector banks (PSBs) with finance minister P Chidambaram, banks were told to analyse the reason for fresh NPAs and find ways to minimise them, and cap individual and industry exposures to avoid concentration of credit to some stressed sectors.
The finance ministry made it clear that the top management and board of directors of PSBs are expected to review the credit quality on a regular basis.
Banks have also been asked to lodge a complaint against auditors of wilful defaulters with the Institute of Chartered Accountants if it is found that auditors did not express their concerns over debt default, sources said.
While Chidambaram told reporters that banks should hand-hold companies in stressed sectors like infrastructure, steel, construction, telecom and textiles by restructuring their loans through the corporate debt restructuring (CDR) mechanism, sources said the ministry outlined the need to strengthen recovery management.
PSBs' gross NPAs as a proportion of gross advances increased to 4% by end September from 3.5% in June and 3.06% in September 2011. The bulk of the increase in gross NPAs could be attributed to State Bank of India, whose NPAs touched 5.8% in the second quarter of 2012-13.
Other than SBI, the fresh slippage was more than 1 percentage point for Punjab National Bank, Central Bank of India, UCO Bank, Allahabad Bank and IDBI Bank.
Despite higher provisioning, PSBs' net NPAs increased to 1.97% at the end of September compared with 1.72% in June and 1.49% a year ago.
PSBs' credit growth slowed to 14.9% at the end of September from 17.7% in end March, while deposits growth moderated to 14.24% from 14.4% during the same period.
Despite slowing loan growth and higher provisioning for NPAs, state-run banks increased their net profit by 32.5% year-on-year during the first half of 2012-13.