Parliamentary panel says banks urgently need to clean up bad debts | Reuters - Firstpost
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Parliamentary panel says banks urgently need to clean up bad debts | Reuters

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MUMBAI Indian banks urgently need to reduce their troubled loans, a panel of lawmakers said on Wednesday, calling for measures that include bolstering bank credit-appraisal capabilities and making public the names of the main defaulters.

Including loans that have been classified as bad and those restructured, or rolled over, total stressed loans were 6.8 trillion rupees ($99 billion) as of the end of September, the Standing Committee on Finance said in a report to parliament on Wednesday. bit.ly/1oAKb3b

Junior Finance Minister Jayant Sinha has put total stressed loans at Indian banks at 8 trillion rupees.

"Considering the effect bad loans have in eroding not only the overall image but also the capital and liquidity of banks, and also their ability to raise capital in the future, there is an urgent need for banks to reduce their stressed assets and clean up their balance sheets, lest they become a drag on the economy," the panel of lawmakers said.

Indian banks, already burdened with their highest ratio of stressed assets in 13 years, saw a surge in their bad loans provisions last quarter. Several state-run banks suffered losses after a clean-up exercise ordered by the banking regulator, the Reserve Bank of India (RBI).

Bad loans are set to go up further this quarter as the clean- up continues, bankers have said.

The panel said it was "not happy" with the management of the problem by the banks or by the regulator RBI, adding the banks had "evidently failed" to notice the early signs of stress.

It recommended setting up "specially empowered committees" to strengthen the governance of large loan accounts and mandatory forensic audits of specific classes of borrowers to prevent a diversion of funds by majority owners of troubled companies.

It also suggested that banks make public the names of top 30 "wilful defaulters".

There was also a need to develop a "vibrant" bond market to finance infrastructure projects, which currently have to rely on bank funding, the panel recommended.

The recommendations are not binding.

($1 = 68.5987 Indian rupees)

(Reporting by Devidutta Tripathy, editing by Larry King)

This story has not been edited by Firstpost staff and is generated by auto-feed.

First Published On : Feb 24, 2016 21:24 IST

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