Former RBI governor Bimal Jalan on Monday said the managements of public sector banks, and not the finance ministry, should be held accountable for the wrong assessment of credit worthiness to check the rising number of bad loans.

“If you put public sector banks in one bracket and other banks in another bracket, you will find that NPAs in the first sector are higher. So that is a product of not political intervention per se, but that could also be a product of the credit worthiness analysis that the banks do....there is much less of a price to pay if you make the wrong assessment of credit worthiness in a public sector, where accountability is a problem,” Jalan said in an event organised by the MCC Chamber of Commerce and Industry.

He said part of the reason for the piling up of NPAs was the slowdown, but that did not explain the whole problem. “The issue is important and the answer that we have to think about it is to how to make the management accountable, the management of the institution (banks) accountable rather than the ministry of the government,” he pointed out.

According to Jalan, managements of public sector lenders should be free to run the banks without government intervention, but at the same time they should be held accountable for their performance.

“Why government intervention in running the public sector banks? You can appoint, you can decide on rural priorities, small-scale priorities that are applicable to banks,” said the former chief of the central bank. Worried over a further rise in bad loans, finance minister P. Chidambaram recently exhorted the state-run banks to effectively deal with NPAs.

“The biggest challenge facing the public sector banks is NPAs and asset quality,” Chidambaram said.

“We have told them (banks) to focus on recovery and banks are focusing on recovery,” he said.

Without providing NPA data of the public sector lenders for the last financial year, the finance minister said it was ‘likely to be a little higher’ over 2012-13, when NPAs stood at 3.84%. (Financial Express)