Rising Defaults in Bank Loans Concern Pranab Mukherjee
Rising defaults in bank loans concern finance minister Pranab Mukherjee. Deliberate policy to ensure bank lending continued despite a slowdown after the global crisis that taken by the RBI and the government make Rising non-performing assets (NPAs). To keep the wheels of the economy churning the system was kept flush with liquidity and banks were repeatedly exhorted to restructure and lend loans.
State-owned banks faithfully did as bid while foreign and private banks largely ignored these calls. the largest government-controlled bank, the State Bank of India (SBI) might be a bit of an outlier, both in a new chairman at its helm and terms of the huge increase in provisions. Gross NPAs of banks had increased 30%, said the minister of state for finance in last December. Losses are likely to increase as the interest rates rise and cycle reverses.
When real interest rates were a negative 6% or thereabouts, many projects that looked bankable. When real rates turn positive, unlikely to look so attractive. In October 2009, RBI announced new norms like the provision-coverage ratio. Banks are required to provide 70% of gross bad loans from September 2010. Rise in NPAs today is the price we are paying for past attempts to stimulate the economy.
