India must improve performance of public sector banks: IMF

The International Monetary Fund said today that India should look at the performance of the public sector banks as it seeks to reform and grow.

India's bank has come under renewed pressure after a massive scam was unearthed in Punjab Nationa Bank(PNB) engineered by diamond baron Nirav Modi. The scam worth $ 2 billion led to scrutiny of other banks even as bad debts of public sector banks increased.

PNB recently posted the largest-ever quarterly loss of Rs 13,416.91 crore for January-March period due to bad loans.

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"Addressing the banking sector balance sheet issues and improving the performance of particular public sector banks is a very important issue for India to support investment and its inclusive growth agenda," IMF Spokesman Gerry Rice said.

A report recently said IDBI Bank had the highest bad-loan ratio among India's banks. The banks in India have around $210 billion in non-performing assets(NPAs), according to a report.

The IMF said India had made progress to address NPAs and was taking further measures to deal with the flow problem.
  
"These steps include the recognition of these non-performing assets, the resolution framework under the Insolvency and Bankruptcy Code. It's in an early stage, but we think that's an encouraging development," Rice said. 

Rice recommended India should improve the risk management system in public sector banks, adding that "further governance" was needed in the key area.

"But we welcome the authority's intention to make public sector bank recapitalisation contingent on measures to strengthen governance and operations and encourage the accelerating implementation of the ongoing reforms," Rice added.