The country's banking sector could witness tough times ahead with gross non-performing assets expected to touch 5 per cent of total loans by March this year, according to an Assocham study.
"Sluggish economic growth and high interest rates are being touted as primary drivers for rising bad loans and if the economic scenario continues there is no doubt that asset quality would suffer further," said the study.
Other factors like delays in obtaining statutory and other approvals as well as lax credit appraisal and complacency in monitoring by banks are also responsible for deteriorating asset quality. The asset quality of banks has deteriorated in the aftermath global economic crisis of 2008.
Gross NPAs of public sector banks were Rs 41,378 crore (Rs 413.78 billion) in March 2006, which came down to Rs 38,305 crore (Rs 383.05 billion) in March 2007 because of better economic environment.
However, they have shown an upward trend since March 2008, Assocham said.
Besides, the ratio of gross NPA to advances for banks increased significantly, from 2.36 per cent in March 2011 to 3.92 per cent in June 2013, it added.
Iron & steel and infrastructure sector are the largest contributors to NPAs of the public sector banks.
Besides, aviation, textiles and mining are adding to the stressed assets, highlighted the study.
These five sectors together contribute around 24 per cent of total advances of all banks, and account for around 51 per cent of their total stressed advances at the end of September 2013, the study pointed out.