Deadline Recommended For Reducing Bank Npas

The Tarapore Committee has suggested a time-bound programme for reducing the non-performing assets (NPA) of the banking system to 5 per cent of total advances by 1999-2000.

The panel has also observed that the financial institutions should be made to function with a targeted mandate to reduce the quantum of NPAs within a time-bound programme.

The committee has called for drastic measures with a view to reduce the NPAs from the current level of 13.7 per cent of the total advances as at the end of March, 1997.

While observing that the Indian banking system is handicapped by the absence of an adequate legal framework to ensure expeditious recovery of loans as also enforcement of security, the committee has suggested that a comprehensive banking legislation and an enforcement machinery be put in place not only to reduce the quantum of NPAs but also to ensure that such a framework serves as a deterrent for future defaulters.

 

The panel observed that the high level of NPAs cannot be borne by the banks if the financial system is opened up to international competition. It said the target for 1997-98 should be 12 per cent and for 1998-99 the figure is pegged at 9 per cent.

As a consequence of the steps related to the reduction of NPA and reduction in cash reserve ratio to three per cent there will be a favourable impact on the banks performance.

With other costs and returns remaining unchanged the spreads available to the banking system would increase by approximately 1.8 percentage points.

Taking into account that there would be a squeeze on spreads as a result of financial liberalisation, the successful implementation of these signposts would result in a return on assets (ROA) comparable to the internationally acceptable level of 1.0 per cent.