The growth in gross non-performing assets (NPAs) has more than matched the rise in credit offtake in the banking system. Bad loans have risen by 20.8 per cent, or over Rs 11,600 crore, during the year ended March 2009 as the asset quality of banks has taken a beating following the slowdown in the economy. However, the central bank which conducted a stress test to assess the impact earlier this year, said everything is fine.

According to the Reserve Bank of India (RBI), gross NPAs have shot up from Rs 55,842 crore in the fiscal ended March 2008 to Rs 67,497 during 2008-09. “This’s not an alarming rise if you consider it as a percentage of advances. Credit was growing at over 18 per cent during the period. Lenders have turned risk averse now. SLR securities may appear than risk any defaults,” said the chief of a public sector bank.

Bankers estimate that NPAs had come down marginally in the first quarter of FY2010 following the restrucuring of stressed loans by banks and slow credit offtake. State Bank of India reported a marginal decline of Rs 200 crore of NPAs to Rs 15,300 crroe in the first quarter. “After the direct impact of the global financial crisis through MTM (market-to-market) losses was assessed to be insignificant for Indian banks, the focus shifted to the possible asset quality concerns arising from weakening growth prospects as certain sectors in the economy clearly came under the influence of falling external demand due to the global recession and subsequent deceleration in domestic private demand,” the RBI said in its latest Annual Report.

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