The Finance Ministry has asked public sector banks to step up efforts for mobilising low-cost CASA deposits and focus on recovery to improve their financial performance.

“Banks have been asked to cut down their reliance on bulk deposits. They need to focus on mobilising low-cost deposits.

They should be focusing more on CASA (current account savings account),” Financial Services Secretary Gurdial Singh Sandhu told PTI.

They should be aiming at 40 per cent CASA for improving their profitability, he said.

CASA is mobilised at a very low rate and subsequently deployed for lending at a much higher rate resulting in higher margin for banks.

All the public sector banks provide four per cent per annum interest rate on savings account, while it is nil for current account deposits. So, the average cost of funds comes much lower than 4 per cent. At the same time, the base rate or minimum lending rate for most of the banks is above 10 per cent.

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On bad debt, all banks have been directed to step up efforts for loan recovery, he said, adding that banks should also pay attention for cutting the overhead cost.

He also said banks need to accord top priority to cases of fraud and wilful default and take legal action against those responsible.

Cases of fraud include providing wrong information, submission of fictitious documents and so on.

Sandhu said banks have to deal with all such cases firmly so that non-performing assets could be brought down.

“Banks have to make all-out efforts for NPA recovery and reducing the level of NPA and cost of funds. Government would be working very closely with banks,” he added.

Non-performing assets or bad loans of state-owned banks rose 28.5 per cent from Rs 1.83 lakh crore in March 2013 to Rs 2.36 lakh crore in September last year.

Banks recovered Rs 18,933 crore worth of bad loans during April-December. They have been monitoring their top 30 bad loan accounts for quite some time now.

(This article was published on May 4, 2014)
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