Bad loans of the listed banks in the country soared by 33.46% to over Rs 1 lakh crore during the second quarter of this fiscal reflecting the impact of rising interest rates and a slowing growth.
The gross non-performing assets of State Bank of India (SBI), the country's largest bank, rose by 46% to Rs 33,946 crore during the July-September quarter.
However, private sector lender ICICI Bank reported a modest 0.39% increase in gross NPA to Rs 10,021 crore.
According to an analysis of 37 listed banks in the country, the gross NPA have gone up to Rs 1.06 lakh crore during the September quarter from Rs 79,078 crore in the corresponding period last year.
Analysts said the steep rise in interest rates over the past 18 months has led to a sharp increase in bad loans. The Reserve Bank of India has increased its lending (repo) rate 13 times since March, 2010 to tame inflation.
The banks are also under pressure from loans outgoes to the sectors facing delays in execution of projects due to the uncertainty on various regulatory issues, thereby, raising concerns over the companies' ability to timely repay loans.
Loans given to mining and power companies might become non performing assets (NPAs) for the banking sector as the delay in completion of projects on the back of regulatory hurdles can impact the corporate profits.
Already, the rise in bad loans has not gone down too well with investors. Shares of SBI lost as much as 7% on the day of its result.
SBI's NPAs rose mainly from loans to export-oriented sectors, iron-steel, agro-based businesses and the government--sponsored schemes.
Besides, the NPA of Punjab National Bank (PNB) rose by 29% during the quarter to Rs 5,150 crore.
Even global ratings firm Moody's has said that slowing economic growth could increase bad loans and impact profitability of companies.
However, another global rating agency S&P has upgraded Indian's banking sector, saying that domestic regulations are in line with international standards.
RBI has also said that the Indian banking sector is not facing any stress and there is no indication of a systemic threat.
Repeated rate hikes by the central bank has increased borrowing costs for corporates and slowed project investments.
This is getting reflected in the index of industrial production which fell to 5 % in the April-September period from 8.2% in the same period last year.
RBI has projected that Indian economy will grow at 7.6% this fiscal, which is lower than 8.5% growth recorded in 2010-11.