Indian banks' NPAs to hit Rs1.5 lakh crore as assets deteriorate

India's banking system is facing the heat of the current economic slowdown, with a study finding that non-performing assets (NPAs) or bad loans likely to rise further in 2014 as the lag effect on asset quality in relation to economic slowdown has not yet peaked.

The study undertaken by the Associated Chambers of Commerce & Industry (ASSOCHAM) raises serious concerns on the deteriorating asset quality of banks, saying that NPAs show no signs of abating in 2014.

"The situation is further expected to deteriorate as non-performing assets (NPAs) are expected to further grow and reach the Rs1,50,000 crore mark by the end of FY14 because there is a lag effect on asset quality in relation to the state of the economy," the study said.

Gross NPAs as on 30 September 2013 stood at Rs2,29,007 crore, 27 per cent higher compared to Rs1,79,891 crore as of 31 March 2013 for 40 listed banks, the study showed.

Public sector banks are facing more problems than their private sector counterparts. The NPAs in public sector banks are growing due to external as well as internal factors, the study said.

"There are many other causes which are also responsible for accumulation of NPAs like faulty credit management, lack of professionalism in the workforce, unscientific repayment schedule, mis-utilisation of loans by borrowers, lack of timely legal solution to cases, political interference at local levels and waiver of loans by government," the study said.

"Public sector banks share a disproportionate burden of the restructured accounts. An area of great concern is that at some point of time some of the restructured assets would slip to NPA," ASSOCHAM secretary-general D S Rawat said.

Restructured accounts have grown at a compounded annual growth rate of 47.86 per cent in public sector banks. The corresponding figures for private sector and foreign banks are 8.12 per cent and 25.48 per cent respectively, the study said.

According to RBI data, net NPA of the 26 public sector banks rose to 2.02 per cent during 2012-13 as compared to 1.53 in the previous fiscal. Net NPA of new private sector banks rose marginally to 0.45 per cent as compared to 0.42 per cent.