The Finance Ministry has initiated a comprehensive consultative process with public sector banks (PSBs) to find out the reasons for the sharp rise in bad loans in the previous five years, apart from outlining national priorities with which these banks have to align themselves.
Touted as a ‘bottom-up consultative process,’ the Ministry will review the performance of these entities in the last five years.
This will be the first comprehensive review of PSBs after Nirmala Sitharaman took charge of the Finance Ministry in May, that will also provide a direction to the PSBs for the next five years.
Banks have been given a detailed questionnaire in which they have to give their feedback on “the reason for the steep rise in NPAs during 2015-19. How many of these were stressed assets and which were not recognised earlier?” according to a note which had been circulated to the PSBs.
The government also wants to know the reasons for the decline in credit flow in the last five years. In particular, the Ministry wants to know if credit to manufacturing has dropped, and if so, why it had, as the IIP has risen from 2.8% in 2014-15 to 4.6% in 2017-18.
Banks also have to dwell on the number of loan applications they received between April 2014 and March 2019 and as to how many were accepted and rejected.
The consultative process will start from branch level upwards to the State-level and then to the national level.
“The consultation will cover eight thematic papers prepared by domain experts and will also include a review of the banks’ performance during the last five years…” a letter from the Finance Ministry to the CEOs of PSBs said.
“The consultative process will be aimed at alignment of banking with national priorities, stimulating ideas and inculcating a sense of involvement among bankers down to the branch level,” the letter, which has been reviewed by The Hindu , further added.
One of the themes of the consultative exercise is ‘enabling bank credit towards a $5 trillion economy.’
Some of the thematic papers on which the consultation will take place are — increasing digital payments, corporate governance, credit to MSMEs and farm loans among others.
Some national priorities to which PSBs need to align are doubling farm income, Jal Shakti, housing for all, education loans, ease of living and corporate social responsibility, among others.