New Delhi: RBI (Reserve Bank of India) Governor Y V Reddy today (Nov 10, 2004) asked banks to pull up their socks to improve recovery of their non-performing assets (NPAs), which have shot up to Rs 1,10,000 crore.

Apart from focusing on better recovery, the banks should adopt more effective cost-control measures to remain globally competitive and to add to their financial soundness.

"We must recognise that cost and recovery management supported by enabling legal framework hold the key to future health and competitiveness of the Indian banks," Reddy said at the opening of Bankers' Conference in New Delhi today.

Pointing out that cost containment was the key to sustainability of bank profits, he said the operating cost of domestic banks were much higher than those in western countries.

"In 2003, operating cost of banks in the UK as a proportion of total average assets was 2.12 per cent, for those in Switzerland it was 2.03 per cent, and less than two per cent in major European economies like Sweden, Austria, Germany and France, he said, adding in India it was as high as 2.24 per cent.

Stressing that recovery of non-performing loans could help in stability of banks, Reddy said, "No doubt, improving recovery management in India is an area requiring expeditious and effective actions in legal, institutional and judicial processes."

He lauded the efforts made by Indian commercial banks in bringing down non-performing loans at 2.9 per cent during the year.

Reddy said risk management was another important area in the modern banking environment and observed that sound risk management practices would be crucial in staying ahead of the competition.

He said, "Implementation of Basel II Accord is likely to lead to an even sharper focus on risk measurement and risk management at the institutional level".