Concerned over the high Non- Performing Assets (NPAs) of public sector banks, Reserve Bank Governor Raghuram Rajan made a strong case for cleaning up bad debts of banks and restructure other possible NPAs within the next 12 months to put the economy back on track. Total Gross Non Performing Assets of public sector banks stood at over Rs 2.43 lakh crore as on September 2014. The top 30 NPAs account for Rs 87,368 crore or 35.9 percent of total gross NPAs of PSBs.
Stressing the need for consolidation in ownership, improvement in governance and enhancement of management capability, Raghuram Rajan said that one of the greatest challenges was to improve the governance structure of PSBs banks. He further highlighted that banks should develop differentiated products and recruit young talent, train and retain them through campus recruitment which at present is banned because of Supreme Court ruling. With the licensing of the small banks and the payment banks, there would be new players in the industry and competition amongst the PSBs will also grow to meet these challenges. The Governor also favored channelising full savings of the households into the financial system so that necessary resources for growth are made available.
Indian banking industry is the most dominant segment of the country’s financial sector and plays an important role in the economic development of the country. Banks help to boost economic growth by allocating savings to investments that have potential to yield higher returns.