The average non-performing assets (NPAs) of Indian banks during the second quarter this fiscal went up by 26 percent, says an industry lobby report.

According to the report by the Associated Chambers of Commerce and Industry of India (Assocham), the aggregate NPA of 21 banks increased by 26 percent to Rs.25,137 crore in second quarter from Rs.19,920 crore in the like period last year.

However, the average capital adequacy ratio (CAR) of the banks improved to 13.68 percent during the quarter under review from 12.08 percent in the same period last year.

The analysis was based on the quarterly results posted by 19 public sector banks and two major private sector banks, Assocham said.

The improvement in CAR, according to the report, reflects better financial health of banks, while the increase in NPAs is a matter of concern as it directly affects the solvency and profitability of banks.

“The increase in NPA should inspire the government to quickly move towards banks consolidation as it will bring down their risks and expand balance sheet size to global standard to take on emerging challenges in the financial sector,” Assocham president Swati Piramal said.

“Although the Indian banking sector has remained insulated from the global financial crisis, the emerging trends show mixed signals,” said Piramal.

The slow credit growth is likely to impact the bottom lines of banks. “Therefore, the banking sector is likely to see rough weather until the credit expansion takes a fast-track,” the report said.

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