RBI's ‘Report on Trend and Progress of Banking in India 2010-11' reveals that the priority sector (to which banks are mandated to disburse 40 per cent of their loans) has accounted for close to three-fourths of incremental bad loans during the year ended March 2011.
The share of outstanding priority sector non-performing assets (NPAs) as a proportion of total NPAs has steadily risen from 46 per cent in 2008-09 to 52 per cent at the end of 2010-11. Priority sector lending includes lending to agriculture, small-scale industries, weaker sections, for housing (of less than Rs 25 lakh) and education.
AGRI SECTOR LEADS
Much of the rise can be attributed to the increased share of bad loans from agriculture sector during this period. The share of agriculture NPAs to total NPAs is at 18.7 per cent in March 2011, up from 11.7 per cent in 2008-09.
This performance of the last two years has come after the agriculture NPA portfolio fell by 27 per cent year-on-year in 2008-09, partly due to the debt waiver.
However, bad monsoon in 2009-10 may be one of the reasons for rise in NPAs. The agriculture NPA-to-total agriculture loans ratio in 2008-09 was 1.9 per cent when the overall gross NPA ratio of all banks was as 2.44 per cent. Since then, the gross NPA ratio of banks has moderated to 2.35 per cent, while the agriculture NPA ratio rose to 3.3 per cent.
LIKELY TO MOVE UP FURTHER
Though the aforementioned data are only up to March 2011, the NPAs of the agriculture sector have risen since in most cases. This can partly be attributable to migration to system-based identification of NPAs. This, coupled with sharp rise in interest costs, increases the likelihood of a further rise in the share of priority sector NPAs in the total NPAs.
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