Prime Minister’s key economic advisor C. Rangarajan today indicated that 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 the rise in bad loans is beyond the 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 (CBI) 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.

NPAs of banks have been going up for the past two years due to slowdown in the economy. 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 31, 2013.

Pulled down by the 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 NPAs 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 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.

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.

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