Following the path of private sector banks, public sector banks (PSBs) are also likely to reduce their provisioning on bad loans in the quarters to come. The change in tracks is in line with expectations of improving economic conditons.

Initial indicators are that NPAs of public sector banks are already starting to decline, said Vaibhav Agarwal, vice-president of research at Angel Broking Ltd.

"One of the indicators we look at is net NPAs and only 11 banks have seen their NPAs increase in the quarter ended September, from 25 banks in the December quarter last year," he said.

Amongst the PSBs, the largest lender of the country, State Bank of India has posted maximum rise in level of net NPAs.

In the period from September 2009 to September 2010, the bank has accumulated Rs 1,674 crore worth NPAs.

"Provisions currently are mostly because of NPAs, but going forward banks may still have to provide for other things like mark-to-market losses on their investments," commented Clyton Fernandes, an analyst at Mumbai-based Anand Rathi Financial Services Ltd.