NPAs of banks to rise this fiscal: Finmin

NEW DELHI: Ahead of the monetary review by RBI, the Finance Ministry today said gross bad debts of commercial banks are likely to rise this fiscal from over 2.5 per cent in 2009-10 due to slippage in loans restructured due to the impact of global economic slowdown.

Financial services secretary R Gopalan also said short-term borrowing by banks from RBI indicates that the system is facing tight liquidity, which many experts say will not allow RBI to tighten money supply in its monetary review on Tuesday.

However, the central bank may raise cost of credit to tame inflation, experts say.

"I expect gross NPAs of banks to go up slightly compared to last year because some of the restructured accounts are not performing the way we would have expected, there are certain sectors which are having problems, real estate sector is having some problems, textiles have some problems," Gopalan told reporters after a regional rural banks function here.

When asked whether there are problems relating to repayment of loans to aviation sector as well, Gopalan said the Reserve Bank has asked the Indian Banks' Association to prepare a report on restructuring of bank loans to this sector.

Due to the impact of global financial meltdown on the Indian economy, loans to certain sectors like commercial real estate, textiles, gems and jewelleries were restructured.

When asked whether loans will be restructured this year as well, Gopalan said there is no slowdown now.

To a query, he said the problems in these restructured loans are not likely to impact credit growth, which stands at over 20 per cent so far in this fiscal.

He said banks have availed over Rs 50,000 crore on Friday, which indicates tight liquidity in the system.

Experts say shortage of cash in the system due to payment towards spectrum and advance tax will not allow RBI to tighten liquidity further in its Tuesday monetary review. But, but may raise the cost of credit by hiking short-term borrowing and lending rates.

Earlier, ratings firm Standard and Poor's had expected 25-50 per cent of loans restructured by Indian banks to slip to non-performing assets in the next two years.

According to CARE Rating Agency data, top 12 banks had restructured assets worth Rs 32,530 crore, taking their total restructured assets to nearly Rs 73,000 crore.