Naidu warns bad loans can threaten economic growth
Vice President M Venkaiah Naidu on Friday noted the challenges being faced by the banking industry, including rising Non Performing Assets (NPAs) in the banking system, saying that the accumulation of bad loans over a long period of time could threaten economic growth by weakening the credit supply channel of the economy.
Addressing the gathering at the celebration of the 125th Foundation Day of the Punjab National Bank (PNB) here, Naidu instructed banks to maintain strict vigilance during pre- and post-sanction procedures of loans and told them to never make compromises in the due diligence processes.
‘‘Banks must constantly strengthen their internal processes to effectively monitor funds and maintain strict discipline in lending,’’ he added, an official release here said.
Expressing concern over the increasing cases of wilful defaults and frauds that had recently been in the news, Naidu said no efforts should be spared in bringing these individuals and entities to speedy and exemplary justice.
He opined that India must enter into more treaties for exchange of information and intelligence on financial fraud and bank accounts and work with international agencies in bringing defaulters to justice.
He questioned the need for existence of tax havens and said India must enter into many more strong extradition treaties. He suggested that banks make use of technology and data analytics to identify the early warning signals of loan defaulting and evolve robust mechanisms to identify the hidden NPAs.
Banks, he said, must focus on nurturing internal skills for credit assessment and undertake forensic audits to understand the intent of the borrower.
The Vice President also asked banks to adhere strictly to the principles of business ethics and good corporate governance at all times. Observing that a bankers’ role was one of stewardship based on trust, he cautioned that banks have a duty to lend customers’ money responsibly.
Underlining the need for financial inclusion and inclusive development by calling for ‘Antyodaya’, he said development held no meaning until its benefits reached the most deprived groups of people.
Stating that banks played a central role in India’s quest for inclusive growth, he expressed his firm belief that India’s banking sector was poised for robust growth as the rapidly growing business and commerce in India would turn to banks for credit and other financial services.
The Vice President said India’s financial institutions had been commended globally for being resilient and for having withstood global downturns and recessions well. ‘‘Banks were no longer just about strong lockers and a good interest rate on deposits. They have transcended their conventional mandates and are now at the forefront of India’s development story,’’ he added.
He cited a number of factors such as the upwardly mobile middle class and the digital revolution as the thrust factors behind these growth prospects.
Naidu called for systemic reforms in the Indian banking sector in light of mounting Non Performing Assets (NPAs) and favoured installing of an effective and efficient system of checks and balances so that the loopholes in the system were not taken advantage of.