During FY2008-09, the public sector banks have reset loans worth more than Rs. 400 billion.

Most of the restructuring was done during the first quarter of FY2009. It is also estimated that banks are considering another loan reset of Rs 100 billion during the second year of current fiscal.

Economists warn that the mass restructuring may provide relief in the bank's balance sheets during FY2009-10, but the figure might rise next year, if the economic crunch deepens.

Saikiran Pulaverdhi, analyst at Centrum Broking, said, "The bad loans may rise if borrowers of restructured loans start defaulting in case economy does not recover."

The central bank, RBI had issued a circular last year in August, asking banks to restructure the loans (expect real estate loans, consumer loans and loans for capital market) to prevent these from being reported as non-performing assets in the tough economic times. It implies "NPAs are suppressed under the shadow of restructuring, "as said by CARE Ratings in its first report on Indian banking sector. The report also pointed that bad loans from credit cards and personal loans are more likely to increase.

CARE analyst, Parag Jariwala, said, "Some of the reset loans may be those with no hope of recovery even after an economic revival."

Loan restructuring can be done by revising the lending rates or by extending the pay back period of the loans. Bankers have confirmed, only those loans, which are standard assets with few repayment lapses, are in the process of restructuring.

M D Mallya, chairman and managing director of Bank of Baroda, said, "The loans being restructured are not bad one's but has some temporary aberrations in payment schedules."

Pointing the implications of mass restructuring, Hemindra Hazari, analyst with Karvy stock, said, "Investors will obviously not get the right picture."

The purpose is to show a better balance sheet, he added.