The government has asked public sector banks to increase lending to the agricultural sector.
Top finance ministry officials on Tuesday met public sector bank chiefs in New Delhi to discuss their performance for the previous financial year.
In addition, banks have submitted their business targets for the current financial year, including loans, margins and profit, among others. The meeting was chaired by S K Sharma, secretary, finance services, ministry of finance.
According to bankers who attended the meeting, the ministry wanted banks to step up direct agricultural lending as it feels banks have the scope to improve their performance on this front.
According to the Trend and Progress report-2010 published by the Reserve Bank of India (RBI), a host of public sector banks as well as private sector banks have failed to lend 18 per cent of their net bank credit to the agriculture sector as mandated by the banking regulator.
Within agricultural lending, banks are supposed to directly lend 13.5 per cent of net bank credit to agricultural activities while 4.5 per cent can be advanced to activities related indirectly to agriculture.
Apart from farm loans, the government also reviewed banks’ effort to move to system in which non-performing assets are classified through the use of technology.
Last year, the finance ministry has asked the banks to have a system in place in which NPAs are identified by the technology without human interference, by March 31. Now, the deadline has been extended by six months to September 30.
In the revised scheme, for accounts of more than Rs 1 crore, such a method was to be put in place by March 31, 2011. For accounts of Rs 50 lakh and Rs 1 crore, deadline was set at June 30 and for all accounts the new deadline is now end of the first half of the current financial year.
Though most of the banks have adopted core banking solution, but few banks are having certain problems with the software. As a result, some of the banks are yet to convert all their operations under the core banking solution.
However, bankers said most of the banks have reported improvement in asset quality in the financial year 2010-11. However, there was concern that when entire NPA identification is carried out through technology, it can through negative surprises.