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Slow growth, interest rates hit loan repayments: FM

By: Rohit (Source: Business Line), Place: New Delhi,  Update:24 Apr 2012

Slow growth, interest rates hit loan repayments: FM

New Delhi, Apr 24:  High interest rates and slow economic growth in 2011 have adversely impacted the repayment capacity of borrowers, the Finance Minister Mr Pranab Mukherjee said on Tuesday.

“Increase in interest rates and slowing economic growth during 2011 have adversely impinged on the repayment capacity of all categories of borrowers, especially small and medium enterprises,” Mr Mukherjee said in a reply to the Rajya Sabha.

Most of the public sector banks registered a rise in non-performing assets as they switched to system based recognition of NPAs during the June—September, 2011 quarter, he said.

The Minister said that banks could restructure such accounts if it is done within the Reserve Bank’s framework.

“However, in case restructuring is done outside the RBI’s framework, the asset classification benefit is not available to the banks,” Mr Mukherjee added.

Restructuring is a case of default and such accounts are considered impaired according to international prudential and accounting norms.

Mr Mukherjee also informed the house that relaxation in provisioning, asset classification and risk weight norms are not taken in positive light in the international agencies, including rating agencies.

Earlier, Mukherjee had said that high interest rates and lower economic growth impacted the repayment capacities of borrowers and pushed up the non-performing assets (NPAs) of banks to Rs 1.27 lakh crore during April-December, 2011.

Banks’ bad loans was Rs 94,084 crore in 2010—11, Rs 81,813 crore in 2009—10 and Rs 68,220 crore in 2008—09, the Finance Minister had told the Lok Sabha in a written reply.

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