PSBs, foreign banks hit by bad loans: RBI

State-run banks and foreign banks were hit by bad loans as their non-performing assets rose, says the Reserve Bank.

Led by state-run banks and foreign lenders, "the asset quality of the banking system deteriorated significantly in FY12 after a period of sustained improvement," says RBI report on 'Trend and Progress of Banking in 2011-12' released over the weekend.

Non-performing assets of public sector banks rose to Rs 1,11,664 crore in 2012 from Rs 52,807 crore in 2003, data from the Reserve Bank of India showed.

The non-performing assets (NPAs) of country's bank SBI and its associates in 2012 (as of March 31) were at Rs 45,695 crore from Rs 16,958 crore in 2003, while that of nationalised banks' were at Rs 65,969 crore versus Rs 35,849 crore.

Though the report sates that there is no systemic risk to the banking system as the fundamentals are robust, the Reserve Bank says the banking system is weaker because of rising bad loans as growth has fallen below potential and companies are reeling under obstacles to project clearances.

"Inadequate credit appraisal during the boom period of 2003-07, coupled with the adverse economic situation in the domestic as well as the external fronts, have resulted in the current increase in NPAs," says the report.

The fall in asset quality was more visible among public sector banks, which saw their bad loans rise on both priority and non-priority loans.

In FY12, gross NPAs of state-run banks rose to 3.3 per cent, higher than the 3.1 per cent at the system-level. Foreign banks also saw a rise in NPAs, but the report did not specify how much was their NPA level.

But the RBI report said that state-run and foreign lenders' recovery performance was better than their private sector counterparts which relied more on write-offs than recovery.

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