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PSU banks may be asked to shut down loss-making branches

Govt may ask PSU banks, insurance firms cut down on staff strength

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Concerned over rising NPA, the government may ask state-owned banks to shut down branches and cut down on staff strength in loss-making units.

"This is a part of an ongoing dialogue, not only banks but insurance companies also. If there are loss-making branches, then we need to re-look at why they are there.

"If that needs working out a business strategy, may be relocating it, may be scaling down of staff, all that needs to be looked at," Financial Services Secretary DK Mittal said when asked if the government has asked lenders to submit a report on loss-making branches.

"Ultimately, branches have been set up to earn. If they [loss-making branches] have been there for some time, say 12 months, then I think there is a case to re-look at it," he said on the sidelines of a CII event here.

There are about 87,000 branches of public sector banks across the country.

Rising interest rates and slowdown in economy have impacted the repayment capacity of borrowers, especially small and medium enterprises, leading to an increase in NPAs.

The non-performing assets (NPAs) of banks have risen to Rs 1.27 lakh crore till December, 2011. Of this, public sector banks' gross bad debt jumped over 51% to a whopping Rs 1.03 lakh crore in 2011.

The gross NPAs of public sector banks have gone up from Rs 68,597.09 crore in December 2010 to Rs 103,891.27 crore as in December, 2011.

On financial inclusion, Mittal said financial institutions have a strategic role. With appropriate financial products, technology and partnerships, inclusion is a viable business model.

In addition to access issues, livelihood generation is a key aspect of financial inclusion. This is necessary to ensure safe return of the money lent, he said.

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