The bad debts — non-performing assets (NPAs) — of public sector banks have surged to a 10-year high. Bad debts for all public sector banks reached 5.64 per cent of their total advances as of December 2014, the highest level since 2004-05, when they stood at 5.73 per cent.

These numbers were disclosed in an agenda note for a meeting Finance Minister Arun Jaitley had with the heads of public sector banks and financial institutions here on Wednesday.

During the last few quarters, there has been a continuous rise in bad debts, making the situation alarming. NPAs were 4.72 per cent of total advances at the end of March 2014, and rose to 5.29 per cent by September-end before surging in the December quarter.

Reasons for the increase in bad debts include sluggish domestic growth and continued uncertainty in global markets, leading to a drop in export of various products, including textiles, engineering goods, leather and gems. According to the agenda note, “PSBs continue to be under stress on account of their past lending.”

Among the 19 major industry groups, the coal and fuel sectors (petroleum, coal products and nuclear) were the only ones to register a decline in bad debts during the first nine months of the current fiscal year.

Finance Ministry officials said both PSBs and the Centre can be expected to continue with measures to improve asset quality. Banks are also expected to move to improve risk management and asset quality.

At the same time, the Centre is in the process of establishing six new Debt Recovery Tribunals to clear the banking sector’s NPAs. 

The Centre feels that clearing stalled projects will help in improving the loan situation of public sector banks.

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