Mukherjee asks banks to improve performance, check NPA

Finance minister Pranab Mukherjee yesterday asked banks to improve their performance to meet the 20 per cent credit growth projected by the central bank this financial year.

At the same time the finance minister, while addressing the annual general meeting of the Indian Banks' Association in Mumbai yesterday, asked banks to keep an eye on asset quality. He also warned that weaker banks might find themselves hard pressed to maintain profitability.

''Banks may no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates had earlier provided. This may expose the weaker banks.''

Expressing concerns over the rising levels of non-performing assets (NPAs) with banks he said this could lead to quasi-fiscal liabilities.

He said that from a macro-economic policy point of view, rigidities in lending rates that resulted from the large stock of NPAs dampened the effectiveness of monetary policy.

''In addition, to the extent that the public sector banks have to be recapitalised by the government because of the credit losses, the NPAs represent a source of quasi-fiscal liabilities,'' Mukherjee said.