Prime Minister's key economic advisor C Rangarajan on Wednesday indicated banks may have to deal with higher non performing assets 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.
He was speaking at the 5th Conference of Central Bureau of Investigation officials and Central Vigilance Officials of Public Sector Banks.
"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 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 of public sector banks rose to Rs 1.76 lakh crore (Rs 1.76 trillion) at the end of June quarter from Rs 1.55 lakh crore (Rs 1.55 trillion) at March 31, 2013.
According to global rating agency Standard & Poor's, India's banking sector's non performing assets 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.
Recently, Minister of State for Finance Namo Narain Meena, in a written reply in the Rajya Sabha, said the NPAs of banks have shown a rising trend.
The stress on the asset quality is a reflection of the stress in the economy of the country.
Public sector banks had recovered Rs 1,905 crore (Rs 19.05 billion) by filing 97,701 suits in 2012-13 and Rs 1,700 crore (Rs 17 billion) through 79,117 suits in the earlier fiscal.
Image: C Rangarajan