NPAs of Indian Banks may surge by 27% in FY13 alone.

Rs 1.6 trillion. That is the staggering amount of bad loans that have accumulated in Indian banking system at the end of the June quarter. This estimate put forth by Assocham seems unbelievable at first glimpse. Especially given the fact that Indian banking sector is governed by a regulator as prudent as Reserve Bank of India (RBI). But that is not all! Assocham has gone ahead to predict that the non performing assets (NPAs) may surge by 27% in FY13 alone. This will result in pushing up the net NPA to loans ratio from 2.9% to 3.8% for the entire sector. Not one but many issues have contributed to this mess. Poor health of borrowers, in some cases government entities, is prime amongst them. Cases in point being Air India and State Electricity Boards. The government's insistence to lend more to bad borrowers by restructuring the loans has magnified the mess. I n addition, lack of reforms, pol icy bottlenecks etc are issue on which neither the bankers nor the RBI have any control. Further lower profits for the sector have limited banks' ability to write off bad loans. All in all, the health of Indian banking system is not very sound. Even in 2008, when global banking was in a state of crisis, Indian banks enjoyed a safe haven status. For problems that are of our own making, Indian banks have lost the halo around them. The sooner they address the problem, they better for the economy.