The NPAs of public sector banks(PSB) have increased in the non-priority sector whereas bad debts related to priority sector advances have declined over the past 25 years. This effectively demolishes the commonly-held belief that the problem of NPAs in the banking system is mainly due to credit allocation to priority sectors, stated a paper `Banking Sector Developments in India, 1980-2005: What the Annual Accounts Speak?', released by the Reserve Bank. Tracing the developments in the banking sector during the 25-year-period, the paper points out that there has been a significant change in the composition of deposits with a clear shift in favour of term deposits. While the share of savings bank deposits remained more or less constant, demand deposits witnessed a decline. Pointing out that foreign banks had attracted more funds of short-term nature in the form of demand deposits, the paper said this could be because "the business class is attracted toward better service offered by foreign banks". PSBs by and large, still prefer to invest a large portion of their investments in approved securities, even though the SLR (statutory liquidity ratio) requirements have been reduced to the statutory minimum of 25%, the reasons being their risk-free nature and the assured returns the lenders get. However, PSBs are exhibiting a different behaviour with a preference for investments in other securities and a reduction in exposure to government and approved securities, the paper stated.
