Causes for increasing bad loans at PSBs

New Delhi: Asked to explain the “real causes” behind ballooning bad loans at public sector banks, RBI governor Raghuram Rajan has put the blame on “overall economic downturn”, among other reasons, in his submission to a Parliamentary panel.

Congress leader K V Thomas-led Public Accounts Committee (PAC), whose term ended on Saturday, has examined Rajan’s response but can ask the RBI governor to appear before it in future once it is reconstituted, sources said. Various public sector banks may also be asked to appear before the panel again to explain their position.

 The Parliamentary panel had suo motu decided to examine the non-performing assets of the public sector banks, which touched Rs 3.61 lakh crore at the end of December 2015. At the end of December, as many as 701 accounts with bad loans exceeding Rs 100 crore owed public sector banks (PSBs) Rs 1.63 lakh crore, while SBI accounted for the biggest chunk.
 Rajan listed six primary reasons for spurt in stressed assets that have been observed in recent times. These included domestic and global economic slowdown, delays in statutory and other approvals, especially for projects under implementation, and aggressive lending practices during upturn as evidenced from high corporate leverage.
Other reasons cited by Rajan were laxity in credit risk appraisal and loan monitoring in banks and lack of appraising skills for projects that need specialised skills, resulting in acceptance of inflated costs and aggressive projections. Besides, he also listed wilful default, frauds and corruption in some cases among the key reasons.

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