An increase in bad loans has prompted the Finance Ministry to ask public sector banks (PSBs) to constitute a committee of the Board to monitor the progress of recoveries regularly.

The committee — comprising the Chairman and Managing Director, Executive Directors and the Government nominee director — will have to submit a monthly report to the Board.

Bad loans at PSBs increased by 28 per cent (or by Rs 31,276 crore) in the six months ended September 30 to Rs 1,43,765 crore from Rs 1,12,489 crore as at March-end.

There are 26 PSBs (majority-owned by the Union Government) in the country, including the five associate banks of the State Bank of India.

Though appreciative of the progress made by the banks on recoveries, the Ministry is of the view that they need to do more on this front.

Due to the current economic slowdown, corporates and micro-, small and medium enterprises are falling behind on loan repayments, resulting in bad loans.

Once a loan is recognised as impaired, banks have to make loan-loss provisioning. This impacts their profitability.

According to the Finance Ministry’s provisional figures, as at September-end, bad loans of PSBs rose to 4.01 per cent of total loans against 3.03 per cent as at September-end 2011.

In the March-end to September-end period, the banks with higher increase in bad loans in percentage terms are as follows: Punjab National Bank (from 3.15 per cent to 4.98 per cent); UCO Bank (3.73 to 5.27 per cent); Allahabad Bank (1.91 to 3 per cent); IDBI Bank (2.57 to 3.65 per cent); Indian Overseas Bank (2.79 to 3.87 per cent); and Bank of India (2.91 to 3.92 per cent).

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