Banks vow to contain NPAs at 1%

Public sector banks (PSBs), in a recent meeting with finance minister P Chidambaram, have made a commitment that fresh addition to gross non-performing assets (NPAs) will not exceed one per cent of the total loan assets.

Containing accretion to gross NPAs was one of the actions promised by chairmen of PSBs as many have reported slippages in their assets quality, sources said.

This commitment comes in the wake of concerns about the asset quality of these banks partially coming true, the sources said. The banks were time and again warned of their aggressive growth in loan portfolios, particularly retail loans.

Corporation Bank and Bank of Maharashtra have actually seen a sharp rise in their gross NPAs in the first nine months of 2005-06.

In many cases, gross NPAs have not seen a drop in relation to the settlements entered into and recoveries made because of the continuing slippages in the asset quality.

State Bank of India's (SBI) gross NPAs have declined, but it is more a reflection of its exposure to Dabhol Power Company (DPC) which has become a standard asset, banking analysts said.

Most banks will see doubling of their loan assets over a three-year period ending March 31, 2007, and this could throw up surprises on the NPA front, bankers say.

The chairmen of PSBs have also decided to settle or write off all NPAs of less than Rs 25,000 by December 31, 2006.

"These small loans are basically personal loans and loans given under various government directed schemes," a senior banker said.