Worried over the slowdown of the economy and the rising non-performing assets (NPAs) of public sector banks, the Reserve Bank of India (RBI) has asked banks to put a loan recovery policy in place while the government has asked them to take new initiatives to increase the pace of recovery and management of NPAs.

The cause for concern is the fact that the NPAs of public sector banks rose close to one percentage point from 3.17 per cent to 4.01 per cent in six months to September 2012, according to official records of the Finance Ministry.

On its part, the RBI has asked banks to have a loan recovery policy, which sets down the manner of recovery of dues, targeted level of reduction (period-wise), norms for permitted sacrifice/waiver, factors to be taken into account before considering waivers, decision levels, reporting to higher authorities and monitoring of write-off/waiver cases.

The government has also asked banks to undertake new initiatives, which include appointment of nodal officers for recovery, conducting special drives for recovery of loss assets and putting in place an early warning system. Banks have also been asked to replace the system of post-dated cheques with the electronic clearance system (ECS), e-auctions, sharing of credit information through CIBIL, assigning of loss assets on incentive basis to asset reconstruction companies and giving weightage to recovery of NPAs in the statement of intent on annual goals of public sector banks.

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