Mumbai, Nov. 8: With bad loans in the banking system starting to rise, the Reserve Bank of India today asked lenders to strengthen their due diligence, credit appraisal and post sanctioning loan monitoring systems to mitigate the problem of growing non-performing assets.
According to the central bank, asset quality of the banking system deteriorated significantly during 2011-12 after a period of sustained improvement.
In its report on Trend & Progress of Banking in India 2011-12, the RBI said inadequate credit appraisal during the boom period of 2003-07 coupled with the adverse economic situation in the domestic as well as the external front had led to the surge in loan defaults.
According to the RBI figures, during 2011-12, gross NPAs of commercial banks increased to Rs 1,42,300 crore from Rs 97,900 crore in the previous fiscal. Public sector banks accounted for the biggest chunk of the gross NPAs with Rs 117,200 crore, up from Rs 74,600 crore in 2010-11.
Fresh accretion of NPAs, as reflected by the slippage ratio, also increased during 2011-12 over the previous year.
Slippage ratio is defined as fresh accretion of NPAs during the year as percentage of standard assets (performing loans or loans where interest and principal is being paid) at the beginning of the year. This ratio had shown a declining trend during 2005-08 but rose during 2008-12.