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Banks need to curb bad loans, come down heavily on wilful defaulters, thunders Sinha

India's finance minister Yashwant Sinha has said that his ministry is working towards reduction in the corporate tax structure, import duty, and non-planned expenditure in order to achieve a growth rate of 7 to 8 per cent every year from the coming fiscal year.

He said that creation of new non-performing assets or NPAs must be contained and defaulters should not be spared.

Addressing bankers later, he said that banks need to pull up their socks to reduce bad loans and also asserted that the government would help them in fulfilling this goal.

"NPAs have to be liquidated. There is no way that Indian banks can have NPAs at current high levels and also send out good signals," he stated.

"We should see that no impression is allowed to go out to people that we are soft on wilful defaulters. I am going to stand up and defend each one of you in the banks who crack down on defaulters."

"Let no impression go to the people of this country that we are being soft on wilful defaulters, irrespective of how mighty and influential they are," Sinha said.

"Come down heavily on them. I will stand up and defend you wherever you take action. The NPAs have to be liquidated. There is no way the Indian financial system can continue with NPAs of this magnitude."

"A major complaint is that Indian agriculture, industry and services cannot be globally competitive with the high cost of money," he said.

"Transaction costs have to be brought down from the present level of between two and three percent. We cannot afford this. We could also raise business volumes without raising overall costs."

He asserted that it would be difficult for the nation to compete in the international markets if the cost of money remained high. When queried by reporters if interest rates would be cut, he reiterated that it was in the central bank's prerogative to decide on the issue.

He said that this target of economic growth rate could be achieved by enhancing industrial and agriculture production through reduced input costs and also increasing the exports, Sinha said.

He was addressing the members of Thane-Belapur Industries Association at its 21st annual general meeting in Bombay today.

Reacting to criticism over his budget proposals by a section of industry, he said that a sustainable economic growth was the only way to get rid of poverty and unemployment problems in the country.

The centre of our economic policy is the common man's interest, he said.

He called upon the industrialists and business community to see his budget proposals in the background of various compulsions such as higher defence allocations, higher government interest payment provisions and development expenditure for social sector.

"I have taken a holistic approach in budget preparations and obviously, there would not be any focus area to prefer particularly in a country like India," he observed.

However, he hinted that his future course of action would be to reduce tax burden on industry to make their products competitive and also curtailment of import duty for easy access of imported materials.

Sinha justified all the measures taken in the budget proposals and refrained from making any comments on roll back and subsidies cut measures. He also declined to say any reduction in bank interest rate by saying that this is under the domain of the Reserve Bank of India governor.

Addressing the annual general meeting of the Indian Banks Association or IBA Sinha cautioned bankers against not paying attention to the rural economy, saying that the level of customer services and support to rural farmers and entrepreneurs are not adequate to support the growth of overall economy.

Sinha said that there was a need to evolve innovative systems and approach to serve the rural customers in more effective way.

"Do not forget we have three levels of economy -- plough-and-bullock cart, brick-and-mortar, and dot-com -- and we cannot afford to neglect any of these,'' he observed.

Touching on the suggestions earlier made by the minister of state for finance Balasaheb Vikhe-Patil, Sinha said that the banks must take advantage of the emerging technology and adopt these technologies in rural areas for providing better services and schemes to improve productivity.

Patil insisted that the bank management must evolve new credit schemes for rural farming and industry and should not always depend on the government to guide in announcing rural development schemes.

Further, the management should not always look at their credit ceiling on particular region and district and must enlarge its loan portfolios, taking care of the growing rural young entrepreneurs' needs and capacity.

Besides growth in rural areas, such schemes and finances would stop migration of people from rural to cities, he added.

Bimal Jalan, the Reserve Bank of India governor, said that the development of human resources and induction of latest technology were the two most emerging challenges before the Indian banking sector in the competitive financial world.

The non-performing assets or NPAs in the banking sector could be controlled and stemmed by policy frameworks and legislations, but the expertise required for management of the banking economy would be crucial and responsive for all levels of economic development.

Earlier, in his address at the board meeting of the Industrial Development Bank of India or IDBI, Sinha said that the comfort of government ownership among the employees of state-owned banks and financial institutions would not be available in future.

All levels of freedom would be given to the chairman and boards to run their institutions with greater accountability and responsibility within the framework of the parliamentary system, he said.

With additional inputs from UNI

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