NEW DELHI: In a bid to combat frauds and wilful defaulters, Finance Minister Nirmala Sitharaman has urged public sector banks (PSBs) to take swift action. The objective is to reduce bad loans and accelerate the momentum of growth, according to sources.
Over the past six years until the financial year 2021-22, banks have written off bad loans amounting to Rs 11.17 lakh crore from their books.
To eliminate non-performing assets (NPAs), which have been fully provisioned for four years, banks remove them from their balance sheets through write-offs.
During a recent meeting with PSB heads, the finance minister stressed the importance of robust risk management practices and the mitigation of cyber security risks.
It was also emphasized that banks should adopt a strong internal audit framework and adhere to internal policies and caveats, sources revealed.
Challenges highlighted in the meeting included the declining market share in terms of advances and the need for low-cost deposit mobilization.
Another concern raised was the increased competition for deposits resulting from the merger of HDFC Ltd with HDFC Bank. HDFC Bank is expected to tap into HDFC Ltd's housing loan customers for retail banking.
PSBs are also facing pressure on their net interest margin due to the prevailing high-interest rate regime. Therefore, they have been advised to focus on high-yield advances with proper risk management and to explore fee income opportunities.
To facilitate the resolution of stressed assets in the banking system, the Reserve Bank of India issued a framework on compromise settlements and technical write-offs last month.
The framework offers clarity on the definition of technical write-off and provides broad guidance on the process to be followed by Regulated Entities when carrying out technical write-offs.
It also outlines important process-related matters such as board oversight, delegation of power, reporting mechanisms, and a cooling period for normal cases of compromise settlements.
However, penal measures will still apply to borrowers classified as fraud or wilful defaulters in cases where banks enter into compromise settlements with them.
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