FM worries on state of banks’ health

Credit growth for the current year is projected at 20 per cent by the RBI and banks will have to step-up their performance to ensure that this is achieved,Mukherjee said while addressing the 63rd annual general meeting of the Indian Banks Association (IBA).

Mukherjee said that many banks had posted good results

in FY 10.

“However,in order to meet the needs of one of the fastest-growing economies of the world,banks will have to constantly augment their capital base,” he said.

Mukherjee said that challenges before banks during the current year include an uncertain pace of global recovery,exit policy,containment of NPA levels,higher provisioning norms,reduction in operational cost and cost of funds.

He said that the recent results showed that the NPAs of some banks had risen and it has a number of negative consequences.

Mukherjee said that this put pressue on the lending rates which discourages creditworthy borrowers.

It also “dampens” the effectiveness of monetary policy he added.

He said the banks may no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates had earlier provided.

“This may expose the weaker banks,” he said.

Despite developments in the global scenario,contribution of the banking sector to the economy in India has grown and shares of Indian banks have outperformed the market.

However challenges will remain,Mukherjee said,adding that the cost of intermediation remains high and bank penetration is low.

He added that financial deepening has to be accelerated as otherwise,it could constrain the full potential of the economy.

“This is essential if India needs to maintain a high GDP growth trajectory,” Mukherjee said.