Bangalore: While there was increasing number of non-performing loans (NPLs) in the banking system, Finance Minister P.Chidambaram said that the banks and companies are getting in to “a very cozy relationship”. He also said that the lenders were asked to act quickly on the recovery and avoid extending loans to companies for working capital needs, reports Business Standard.

“NPLs are high, as the recovery mechanism had stopped. Banks were tardy and, to some extent, soft on recovery. We have failing companies and prosperous promoters. We have to recover these loans,” Chidambaram said at a panel discussion organised by the National Stock Exchange (NSE).

He added by saying, “Now, bankers have been told in no uncertain terms, by both the government and the regulator, that they have to get cracking on recovery.”

According to the finance minister, the NPL figures look more exaggerated when compared to 10 years ago, however banks have moved to a system-based NPL detection. “2004 (NPL) numbers don’t compare with 2013 numbers. These are the true numbers; these are not exaggerated. The earlier numbers were suppressed numbers,” he said. “From the 2004 NPL identified by managements of banks, we now have moved to system-detected NPL. Bank manager can no longer hide NPLs.”

“Banks and corporates have entered into a very cozy relationship. It’s very convenient for corporates to go to a bank, even for working capital. It is unheard of in any other developed economy. It is very convenient for a bank manager to lend working capital to a highly rated corporate. The corporate bond market is not developed because corporates think banks are ready to give money to them. It is only when the banks say no to corporates, will they be forced to go to a bond market. Today, (lenders) are happy to lend,” he said.

Chidambaram suggested that, to improve and develop the corporate bond market, existing infrastructure can be used effectively.

However, he added that the blame is on banks and not on the government. “On the board, the government has one nominee. But there are also independent directors, a chairman and a managing director; there is a regulator. If the banks and bank boards have not performed their duties, the blame should stop at bank boards, not the government.”

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