The year ended in 2009 saw an increase in banks' NPAs by 30% as compared to the previous year. The rise has been due to stress in many sectors and farm loan waiver which led to a step decline in the profits of banks. The banks also could not take efficient measures to curb the exposure on sectors that brought in bad debts.

The Government said in a reply to the Rajya Sabha that the overall NPAs have increased to Rs 80,023 crore at the end of December 2009 from Rs 61,647crore at the end of December 2008, thereby showing a 30% rise.

Earlier rating agency ICRA had forecasted that non performing assets (NPA) of Indian banks may rise to 3.25-3.75% of total advances as compared to 2.17% in March 2009.

"Banks will be more cautious towards lending to sectors such as real estate, exports and even retail loans," said a senior official with a private bank.

Many banks have reduced retail lending specially in the personal loan segment.

According to a report by Fitch rating on ‘banks' restructuring loan portfolio', restructured bank loans of Rs 30,675 crore may turn bad in 2010-11. This if happens will raise the banks' gross NPAs by 1 more percent.

State owned banks feel that the heat of rising NPAs will not touch their profitability and say that NPAs form only a part of total advances of a bank.

"If you look at our figures, the gross NPAs are at 1.8% of our total advances. Besides, all banks have been making provisions for these loans, which have been reflected in third quarterly results. There will be some caution but it's not over-exercised," said CGM Punjab National Bank, RIS Sidhu.

The third quarter results of PNB this year showed a 1% increase in net profit to Rs. 1011.31 crore.

SBI also feels that the rising NPAs will not affect the bank.

"There are no indications that loans to a particular sector has totally gone bad. Every sector has reported bad assets and there seems no reason to stop lending to any particular sector," said chief financial officer SBI, SS Ranjan.

However, the public sector banks have also witnessed a 0.27% rise in NPAS as compared to last year.