Finance Ministry directs banks to make provision against shares pledged by companies

MUMBAI: The government has directed public sector banks to closely monitor large corporate loan accounts and submit a plan to address business risks. Banks will have to provide this plan within two weeks, banking circles said.

Banks in the country have suffered huge losses in the past on loans given to debt-ridden companies filed under the Bankruptcy Act.

Banks have been instructed to make provision against pledged shares of companies along with compilation of market data and keep an eye on the overall exposure of such companies. So that timely action can be taken in case the company becomes weak.

Bankers have been told that it would be feasible to increase the stress test on large corporate loan accounts, sources said. It has also been asked to prepare a plan to meet the risks associated with banking business.

Banks have also been instructed to monitor the mark-to-market impact on the trading books of the increase in interest rates and to maintain liquidity ratios.

Sources added that the directive was given to the banks by the finance ministry officials during the bankers' meeting with the finance minister last weekend.

Banks have also been advised to increase the amount of scrutiny of their asset-liability profiles in view of the global banking crisis. However, even amid the global banking crisis, Indian banks are seen as safe.