The Hindu : No ground for banks to avoid lending: Minister

Online edition of India's National Newspaper
Thursday, Oct 10, 2002

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National

No ground for banks to avoid lending: Minister

By Our Special Correspondent

CHENNAI OCT. 9. There is no justification for bank officials to abstain from taking decisions on lending out of fear of vigilance investigation or inquiry by the Central Bureau of Investigation (CBI), the Union Minister of State for Finance, Anand Rao V.Adsul, has said.

Replying to questions at a press conference here on Tuesday in connection with his meetings with regional/zonal managers of public sector banks and with the General Insurance Public Sector Association (GIPSA), Mr. Adsul said bank officials had nothing to fear if they took decisions "within the scope of rules and regulations". If a borrower was prepared to offer collateral far exceeding the quantum of loan, there was no reason why the money could not be advanced, he said.

He said banks in Tamil Nadu had done well in respect of priority sector lending, with the advances totalling 39 per cent of the net bank credit (against the RBI stipulated norm of 40 per cent). In respect of the Chennai-based Indian Bank, he said the Union Government had extended assistance by way of equity capital infusion to the extent of Rs. 1,000 crores. "The present management" of the bank had "realised that irrespective of what had happened in the past, the bank would have to work hard and within the RBI guidelines" to sustain itself. The RBI was reviewing the bank's performance every quarter.

The Minister said non-performing assets (NPAs or bad and doubtful debts) were the "biggest problem" faced by public sector banks, which had to compete in the market with private sector banks. If the Rs. 60,000 crores of loans borrowed by "big shots" had been repaid, this money would have been deployed in financing economic activity. Borrowers had taken advantage of appellate provisions of the judicial system to avoid repayment. The recently promulgated ordinance on recovery of dues to banks and financial institutions would help deal with the problem, he said.

Regarding his meeting with managements of the four public sector insurance companies, Mr. Adsul said the biggest problem faced by them was the loss sustained in covering of third party liability under motor insurance. The premium for third party cover should be linked to the level of claims from accidents and risks involved in granting the cover, he said.

Asked whether private sector insurance companies had the right to refuse third party cover, he said the companies were keen on making profits and "are taking advantage of the fact that they are private companies".

If public sector insurance companies too refused to issue this policy cover, the public would question them since they were government companies. "Some guidelines must be there for private sector companies", he said.

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