Govt asks banks to stay clear of high risk deals

The Finance Ministry has issued an advisory to public sector banks to be extra vigilant and avoid transactions where risk element is high.

"We are witnessing a meltdown in the US financial markets, which is spreading to the financial markets in the UK and Europe. Prudent practices of the Indian financial system are now standing it in good stead. International developments, however, underscore the need for banks to be extra vigilant in avoiding transactions where the risk element is very high," Financial service secretary Arun Ramanathan said in a communication to banks.

The department has provided bank-wise non-performing assets in housing, commercial real estate, personal loans and vehicles among others and has sought corrective action where the bad loans are high. Sources said that as soon as the credit crisis started in the US last month, the government swung into action and asked for data on delinquency rates from the public sector players which account for two-thirds of the banking business in the country.

 

While the performance up to August was reviewed by Finance Minister P Chidambaram and the overall climate was found satisfactory, Ramanathan and his officials are holding discussions with individual banks, which have seen a spike in sticky assets, to assess the overall performance. On August 13, Chidambaram had also advised the public sector bank chiefs to avoid exotic products without full knowledge of the implications and that the banks should report such exposures to their boards.