Bad loans in the promissory note system, mainly in open zone banks, could go up serve as the vendors/contractors whom they financed are accepted to be confronting remuneration delays from assorted Central Government departments.
The remuneration check comes in the backdrop of the Government tightening its leather belt to keep the mercantile shortage inside of the targeted 5.3 per cent of GDP this mercantile (FY 2013) to wand off a move down in emperor rating, say bankers.
Delays in let go of payments by supervision departments will have a sequence greeting with the vendors/contractors (mostly in the micro, tiny and intermediate craving category) in spin descending at the back on loan repayments to banks.
The bottomline is that banks could see an build-up to their bad loans portfolio, thereby requiring them to make serve ability for bad loans. Provision is an responsibility set in reserve as an stipend for bad loans and weighs on the profitability of banks.
If profitability of these banks is impacted due to provisions, then they will be compelled in dogmatic dividends.
Dividends paid by open zone undertakings, inclusive open zone banks, help slight the mercantile deficit, that arises when the Government's complete output outstrips the income it generates.
While the Government might be gritty to rein-in the mercantile deficit, the activities of its departments could finish up spiteful the interests of the banks in that it binds most stake, mentioned a comparison open zone bank official.
There are 21 banks, inclusive State Bank of India, Punjab National Bank, Bank of Baroda and Bank of India, where the Government binds over 51 per cent stake. These banks had collectively paid dividends aggregating Rs 5,666 crore to the Government in FY 2012.
Public zone banks as a organisation are disorder beneath bad loans (also well known as non-performing assets).
This is underscored by the fact that their sum non-performing properties to sum advances proportion rose to 4.02 per cent as at September-end 2012 from 3.57 per cent as at September-end 2011.
Given that MSMEs do not have the negotiate power, they might beat the lengthened remuneration motorcycle by possibly supplying sub-standard materials to supervision departments or carrying out trashy work, mentioned a banker.
In the box of supervision departments, MSMEs at least have an self-confidence that if the remuneration does not advance in 90-120 days then it will advance in 240 days. However, MSMEs find recuperating receivables from many considerable corporates an ascending task.
Ramkumar.k@thehindu.co.in