Slowdown Worries Finance Panel

The Standing Committee on Finance, the parliamentary body set up to examine finance sector, discussed issues relating to the poor credit off-take and the problem of mounting recoveries, bankers said yesterday.

The committee, headed by Member of Parliament, Murli Deora, met with officials of State Bank of India (SBI), Bank of India (BoI), Bank of Baroda (BOB), and Central Bank of India.

The committee is on a two-day visit to Mumbai to review the status of the financial sector. Following its meeting with various segments of the financial sector, it will submit a report to the Ministry of Finance (MOF).

Bankers said the committee's main concerns were the slowdown in banking activity as was reflected in the weakening off-take of bank credit, the mounting recoveries problem, and the increased write-offs by banks of bad assets.

The committee asked banks whether a `fear psychosis' was preventing them from extending fresh credit, bankers said. They said the committee discussed the existing norms for classification of assets as non-performing ones and asked banks whether the present norms were too stringent.

Bankers have attributed the slowdown in credit off-take to the industrial slowdown which has resulted in lower profits across sectors. As a fall out of this, they said recoveries were also mounting discouraging lending activity. The committee asked whether a watering down of the norms would encourage increased lending by banks, they said.

Banks, however, said the norms should be tightened to bring then on par with international standards.

They also said matters referred to the Chief Vigilance Commissioner (CVC) must first have the banks' boards' concurrence.

The committee expressed concerned over the increased number of write-offs of bad assets by banks and questioned them on their lending practices with regards to this.

"The committee wanted to understand the main factors facing the banking sector today," a banker said.