New Delhi: The government has asked the public sector banks to phase out all short-term loans without collaterals by January end saying these lendings create pressure on balance sheets of banks.
"All such loans shall either be phased out in the next six months time or collateral security will be created," a Finance Ministry communication to heads of all PSBs said.
The PSBs have also been asked to frame a policy for sanctioning short term unsecured loans.
It further said in future, any sanctions without security should have the approval of their Boards as "most of these loans are unsecured and therefore create pressure on PSBs for keeping such account standard".
The Finance Ministry, said in case any such loans have become non-performing assets (NPAs, details of the cases should be provided to it.
The directive applies to loans which are being extended without any security and are of short term in nature.
Since short term loans create pressure on the PSBs, the ministry felt there is a need to reduce this pressure by strengthening the process of sanction of such loans, the communication issued last month said.
The instructions to PSBs comes at a time when NPAs in the state-owned banks are rising due to slowdown in economic activities.