Concerned over the rising cases of willful defaulters, Finance Ministry has asked the Reserve Bank of India (RBI) to tighten lending norms to prevent borrowers from opening multiple current accounts outside their consortium banks. Currently, there has been a spate of defaults taking place in banking system and majority of them are on account of economic recession but there is small proportion of cases where defaults are intentional.
Ministry is of the view that defaulting borrowers are indulged in diversion of funds by opening of multiple current accounts outside the members of the consortium. Finance Ministry has suggested the central bank to tighten the norms and monitoring system so that such activities could be prevented. Ministry had also ordered limited forensic audit of some non-performing accounts of public sector banks to find out whether there were any irregularities in sanction of loans.
Banking is the most dominant segment of the country’s financial sector and plays an imperative role in the economic development of the country. Increasing NPAs have become a major concern for industry adversely impacting the profit margin of banks. Gross NPAs of public sector banks increased to Rs 2,27,264 crore at the end of March 2014. Five key sectors include infrastructure, textiles, iron and steel, mining and aviation services contributed significantly to the level of stressed advances.