Banks' NPAs may rise due to rate hikes: Central Bank Chairman S Sridhar

Posted By: Religare
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Banks' NPAs may rise due to rate hikes
Observing several small companies fighting hard to service their loans due to the increase in the inters rates, which these companies had borrowed during low rate regime, Chairman and Managing Director S Sridhar, Central Bank of India claimed that the non-performing assets (NPAs) for the industry are likely to increase.

The increase is predicted by noticing the increase in number of small number of companies which due to the increase the hike in rates of the loans, can't afford to take them. Discussing the problem further, Sridhar said, “Some increase in NPAs cannot be ruled out, in my view across the industry."

Tracing back the history, Sridhar further reminds the situation of global slowdown that took place after 2008 September. The situation was the repercussion the stimulus announced by the government that resulted in high liquidity and low rates. At that time, in order to enhance the growth, the Reserve Bank of India chose to soften its policy.

However, the tightening of the policy soon took place when the inflation started out of control. “Somebody down the chain will have to bear the stress," Sridhar said, adding the stress is "inevitable".

Talking about the measures taken by the Central Bank of India, Sridhar said the bank is in process of installing software, designed to mention the stress in the assets at a very early stage. The installation would help the bank to take the suitable action appropriately at the right time. "The idea is to be proactive than reactive," Sridhar, who retires from the bank today, said.

Read more about: central bank of india, npa, rbi, nse, bse
Story first published: Wednesday, June 1, 2011, 9:30 [IST]
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