The automated system of tracking and calculating NPAs being adopted banks is creating trouble for them now. With only two months remaining for fiscal end, banks are witnessing a rise in their NPAs.
When a public sector bank ran a trial estimation of its NPA for the year, it experienced a 50% rise in its bad loans. Not considering the size of the lender, the bad loans showed a surge by 10 to 30% after the new system was adopted.
RBI data reveals that as on March 31, 2010, the total NPAs of public sector lenders stood at Rs 57,301 crore. Of this, 55% could be attributed to priority sector lending such as agriculture, small and medium enterprises and others.
New parameters to NPA calculation have been added by the Finance Ministry which have to be adhered to by public sector banks by March 31, 2011.
When manual calculation is done, there is some amount of discretion left on the part of the official doing the calculation. But the automated system removes any amount of subjectivity in the process and this is why banks are experiencing a huge surge in bad loans.