Finance Minister P Chidambaram raised concern about the rising non-performing assets (NPAs) in the banking system and asked banks to control it order to prevent adverse impact on profitability.
Huge provisioning for NPAs is eating into the profits of state-owned banks, the minister said while addressing the annual general meeting of the Indian BanksÂ’ Association.
In view of the huge capital requirements over the next five years because of the implementation of Basel-III norms, banks must contain NPAs, Chidambaram said. He asked the banks to take steps to reduce NPAs.
The minister said, “While I will be very happy if all the equity that is required is provided by promoters, non-promoter shareholders,”.
“But I am afraid that is not how capital is found for running enterprises. A significant portion of capital has to come from retained earnings. That can happen only if banksÂ’ profitability increases, which can happen only if you are able to contain non-performing assets,” he said.
Reserve Bank of India Governor Duvvuri Subbarao informed that Indian banks will be required to raise an additional Rs 5 lakh crore of capital to meet the Basel III capital rules, including Rs 3.25 lakh crore of non-equity capital and Rs 1.75 lakh crore of equity capital.
A large amount of this capital has to come from retained earnings, he said.
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