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Home Technology India Finance ministry directs rural banks to migrate to a system-based identification of bad loans

Finance ministry directs rural banks to migrate to a system-based identification of bad loans

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New Delhi: The finance ministry has directed all the regional rural banks (RRBs) to migrate to a system-based identification of bad loans by 31 March.
 
Migration to the system-based identification will increase NPA levels of RRBs, said Dilip Kumar Mukherjee, general secretary of All India Regional Rural Bank Employees Association. “If the government ensures adequate capital support, then the migration can happen smoothly.”
 
In a system-based identification, bad loans are identified according to a predetermined parameter set in a computer software and can’t be manipulated by bank officials.
 
A similar move to a system-based identification of NPAs by state-controlled banks had resulted in a jump in bad debts for these banks.
 
“There will be two advantages. The first is that RRBs will be forced to clean up their books, and second, they will look at the accounts more carefully,” said a finance ministry official. “We know it will throw up some huge unpalatable numbers. But it is better to clean up the books in one shot”, he added.
 
As per the RBI data, the average gross NPA ratio of RRBs was 3.66% as on 31 March. RRBs had last month asked the finance ministry for relaxing the deadline; but the ministry did not yield. “We will have to set aside more funds for making provision for bad debts. Gross NPAs for some could touch double digits also,” said the chairman of a Rajasthan-based RRB.
 

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