Mumbai, Nov. 8: The Reserve Bank of India today told banks that the restructured loans of companies might pose a risk of losses over and above the diminution in the value of advances.

The RBI warning — expressed in its Report on Trend and Progress of Banking in India-2009-10 released today — comes at a time domestic banking is witnessing a rise not only in non-performing assets (NPAs) but also in the proportion of doubtful and loss assets.

According to the RBI norms, an advance is classified as NPA if interest and/or instalment of the principal amount remains overdue for more than 90 days. Doubtful assets are those that are non-performing for more than 18 months.

While the NPAs are an important indicator of the financial soundness of banks, the report said there were some emerging concerns during 2009-10.

The asset quality of banks had been improving with the declining level of gross and net NPA ratio since 1999. The gross NPA ratio, which stood at 14.6 per cent in March 1999, fell to 2.25 per cent in March 2008.

During the economic crisis of 2008-09, the ratio remained unchanged. However in 2009-10, the gross NPA ratio increased to 2.39 per cent. The net NPA ratio rose to 1.12 per cent in March this year from 1.05 per cent a year ago.

Gross NPA ratio was the highest for foreign banks, followed by private sector banks.

“The empirical analysis taking growth rates of gross advances and gross NPAs since June 2000 indicated that NPA growth follows credit growth with a lag of two years. Asset quality can get compromised during the periods of high credit growth and this can result in the creation of NPAs in later years,’’ the RBI said.

Banks have resorted to loan restructuring to help creditworthy borrowers hit by unexpected and adverse economic developments. In such cases, there is a reduction in the interest rate or rescheduling of the repayment of principal amounts.

Banks have recently been reporting slippages from restructured accounts. The report, however, said the improvement in domestic and global economic conditions could help limit the extent of fresh slippages.

Citing the deterioration in asset quality, the central bank said signs of financial stress remained an important concern for banks in the medium to long term.

On liquidity, the RBI said sound liquidity management involved prudent management of assets and liabilities supported by a process of liquidity planning taking into account changes in economic, regulatory or other operating conditions.