Addressing governance issues could help reducing NPAs: Report

New Delhi: Addressing governance issues of banks reeling under high NPAs and passing of the bankruptcy code could help in reducing bad loans in the banking system, says a report by CARE Ratings.

In 2015-16, the NPA (non-performing asset) scene has become even more serious over the quarters, the report said.

Average Gross NPAs across all banks increased from 4.4 percent in Q4 FY15 to 4.7 percent in Q1 FY16 to 4.9 percent in Q2 FY16 and 8.1 percent in Q3 FY16. Most of the increase in the NPAs can be attributed to the public sector banks.

"A warning signal is when growth in NPAs exceeds that in credit on a continuous basis of 3-4 quarters. While there is concentration of NPAs in PSBs, the problem is generalised for all banks including those in the private sector and foreign banks," the study said.

However, it said conditions could improve from 2016-17 onwards on account of the cleaning up operations of banks as per news received in third quarter of the current fiscal as well as a turnaround in the economy.

Better monitoring of assets, especially those with high value and separate departments to address the issue, are "some thoughts on reducing NPAs", the agency said.

Addressing governance issues in some banks that have high NPAs and passing of the bankruptcy code, a bill for which is pending in Parliament, would be very useful in addressing the issue, it added.

NPAs normally have tended to move along with the economic cycle. Often loans given during good times stop performing when conditions turn adverse, the report said.

The recent fall in commodity prices has affected several industries and those which are leveraged have had issues with debt servicing, the report said.

The interest cover ratio has also been declining over the last few quarters, it added.