Banks need to improve asset quality to support 9% growth: FM

Concerned over decline in profitability of the banking sector, Finance Minister Pranab Mukherjee today asked the lenders to improve asset quality to support 9 per cent economic growth in the coming years.

"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.

The support of the banking sector is essential as India moves to 9 per cent growth trajectory, he said.
    
"India with growth trajectory heading towards 9 per cent or more in the coming years is placed at a critical juncture. Banking sector needs to support this growth momentum," he said after release 'The Bankers' Beacon, a book on the history of Union Bank of India written by renowned journalist M V Kamath.
    
Acknowledging that Indian banks remain more or less unscathed from global financial meltdown, he said there was, however, a decline in the profitability of Indian banks in 2009-10 in terms of all the major indicators.
    
Furthermore, he said 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 NPA losses.
    
As regards financial inclusion, Mukherjee asked all the banks to step up their efforts towards financial inclusion using the instrument scale neutral technology as this would help in bringing the vast population into the ambit of formal finance and also boost future economic growth coupled with equity.
    
According to the RBI, he said, of the 6 lakh habitations in India only about 30,000 have commercial bank branches. On an average there are less than 3 bank branches per 100 sq. Km. of land area and this ratio is worse for rural areas and for the North-eastern region.
    
In 2009 deposit mobilised in rural bank branches was merely 9 per cent of total deposit mobilised by banks and the share of rural credit in total credit of banks was even lower at 7 per cent, he said.
    
The percentage of people having any kind of life insurance cover is just 10 per cent while the percentage of non-life insurance is merely 0.6 per cent, he added.
    
Mukherjee said, Union Bank has been transforming itself into a modern bank by leveraging on technology and adapting to the changing needs and opportunities, ensuring appreciable  growth in its business from just Rs 50,000 crore to Rs 3 lakh crore during this decade.