Banks' NPAs may rise, says Central Bank of India

Central Bank of India Chairman and Managing Director S Sridhar on Tuesday said the industry’s non-performing assets (NPAs) are likely to increase, since smaller companies that borrowed when the rates were low would find it difficult to service their loans due to the increase in rates.

“Some increase in NPAs cannot be ruled out in my view, across the industry,” Sridhar said, adding different banks would adopt different strategies to deal with the problem. The stress would emanate from smaller accounts, which “are not able to bear the increased cost of funding” and are constrained because of a “lower access” to money, compared to the past, he said.

Sridhar also said the stress could be traced back to the global slowdown after September 2008, when the government announced a stimulus that resulted in high liquidity and low rates. “Somebody down the chain would have to bear the stress,” he said, adding the stress was “inevitable”.

The Reserve Bank of India (RBI) had adopted a stance of softening the policy to fuel growth in the years of the slowdown. However, it started tightening the rates, as tackling the growing inflation took precedence. RBI had raised policy rates eight times in the last 12 months to tame inflation. It had also said it would tighten rates, even at the cost of short-term growth.

Sridhar said Central Bank of India was installing a software to identify stress in assets at an early stage. “The idea is to be proactive (rather) than reactive,” Sridhar, who retires from the bank on Tuesday, said. The bank also announced a tie-up with brokerage firm Angel Broking, which would allow its account holders to trade in different asset classes.