Prime Minister's key economic advisor C Rangarajan on Wednesday indicated banks may have to deal with higher non performing assets (NPAs) on account of poor economic performance.
'NPA also increases because of the way economy behaves. If rise in bad loan is beyond control of banks, then banks need to be very careful in identifying NPAs,' Rangarajan said.
'While judging increasing NPAs, banks should also take note of what is happening in the environment. Some amount of loan can for a time become NPA,' Rangarajan added.
Non-performing assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy. The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 per cent of the total assets at the end of March, 2013.
Pulled down by poor performance of farm, manufacturing and mining sectors, Indian economy slowed to 4.8 per cent growth rate in the January-March quarter of last fiscal year and fell to a decade's low of 5 per cent for the entire 2012-13 fiscal.
Gross non-performing assets (NPA) of public sector banks rose to Rs 1.76 lakh crore at the end of June quarter from Rs 1.55 lakh crore at March 31, 2013.
According to global rating agency Standard & Poor's, India's banking sector's non performing assets (NPA) ratio is likely to surge to 3.9 per cent of total loans in 2013-14 and to 4.4 per cent in 2014-15, compared with 3.4 per cent in fiscal 2012-13.
'NPA also increases because of the way economy behaves. If rise in bad loan is beyond control of banks, then banks need to be very careful in identifying NPAs,' Rangarajan said.
'While judging increasing NPAs, banks should also take note of what is happening in the environment. Some amount of loan can for a time become NPA,' Rangarajan added.
Non-performing assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy. The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 per cent of the total assets at the end of March, 2013.
Pulled down by poor performance of farm, manufacturing and mining sectors, Indian economy slowed to 4.8 per cent growth rate in the January-March quarter of last fiscal year and fell to a decade's low of 5 per cent for the entire 2012-13 fiscal.
Gross non-performing assets (NPA) of public sector banks rose to Rs 1.76 lakh crore at the end of June quarter from Rs 1.55 lakh crore at March 31, 2013.
According to global rating agency Standard & Poor's, India's banking sector's non performing assets (NPA) ratio is likely to surge to 3.9 per cent of total loans in 2013-14 and to 4.4 per cent in 2014-15, compared with 3.4 per cent in fiscal 2012-13.