Banks need to pay attention to asset quality: Pranab

NEW DELHI - Finance Minister Pranab Mukherjee Thursday asked public sector banks to pay due attention to asset quality in a bid to tackle any unexpected risks and challenges.

Banking sector needs to support the growth momentum in the economy while giving due attention to the asset quality and prudent provisioning to balance emerging returns and risks, Mukherjee said at the 92nd foundation day of Union Bank of India here.

He said even though Indian banking sector performed relatively better during the recent global financial and economic crisis, several challenges remained unsolved.

India with growth trajectory heading towards nine percent or more in the coming years is placed at a critical juncture. Banking sector needs to support this growth momentum.

Though the Indian banks could emerge from the global financial crisis in relatively good health, challenges still remain, Mukherjee said.

There was a decline in the profitability of Indian banks in 2009-10 in terms of all major indicators. Furthermore, the asset quality of banks deteriorated and the coverage ratio of provisions showed a fall at the aggregate level — reflecting a weakening cushion to meet non-performing assets losses, the finance minister added.

Mukherjee asked public sector banks to expand operations in rural areas. Though there has been a welcome development in the recent years with increase in the penetration of bank branches and ATMs, performance in meeting agricultural and weaker sections sub-targets remains relatively weak.

According to the Reserve Bank of India, only about 30,000 of the six lakh habitations in India have commercial bank branches. On an average, there are less than three bank branches per 100 square km of land area and this ratio is worse for rural areas and for the north-eastern region.