Assocham warns of NPAs in telecom, airlines, SMEs and agriculture

BS Reporter / New Delhi August 15, 2011, 0:11 IST

Though banks have shown improvement in asset quality over the years, a fast changing macro-economic scenario has thrown up renewed risks of accounts going bad in certain vulnerable sectors like telecom, airlines, small and medium enterprises (SMEs), and agriculture, says a study.

“There still remains a considerable scope for improvement in asset quality of Indian banking institutions and regulatory norms associated with them,” said the study conducted by the Associated Chambers of Commerce and Industry of India.

The report, however, appreciated that gross non-performing assets (NPAs) of all scheduled commercial banks now comprised two per cent of advances, compared to 15 per cent in the late 1990s. The study has revealed that public sector banks led the increase in NPAs.

Realising the risk that existence of high NPAs in one sector could lead to drying of credit flow to others, the study recommended adequate insurance schemes for SMEs and the agricultural sector to provide a meaningful cushion if the accounts turn bad.

The study also suggests debtor assistance programmes to ease the burden of unemployment, rising interest rates or devaluing currencies.

More, banks could be empowered to get a particular segment of clients’ business audited or verified by an independent entity to detect any possible warning signals, the study recommended.