Rising NPAs not posing threat to banking system: RBI

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Attributing rising bad loans to business cycle, the Reserve Bank on Tuesday said that non-performing assets (NPAs) are not posing any threat to the banking system.

"It (NPAs) is not reaching a point where it threatens the integral system. I don't think we are at that point," RBI Deputy Governor Subir Gokarn said here.

He attributed the rise in NPAs to various domestic and international reasons. "There is an overall business cycle movement. There is overhang from the previous shock of 2008-09," he added.

Non-performing assets of state-owned banks have increased to 2.31 per cent of their assets at the end of March 2011, from 2.27 per cent in the year-ago period.

Amid concerns of rising NPAs in the banking sector, the country's largest lender SBI had put in place a separate mechanism to contain them. SBI's NPAs had reached a three-year high of 3.52 per cent of loans in the quarter ended June 30.

On RBI's decision to deregulate the Savings Account interest rates, Gokarn said the move would increase competition among banks for retaining customers.

Earlier, banks were mandated to give four per cent interest rates on such deposits, but with the freeing of rates, several private sector lenders, like Yes Bank and Kotak Bank, have hiked rates to six per cent.

"We did it at a time when banks are not grappling for deposits. The deposits are quite quite healthy. The gap between deposit growth and credit growth is quite narrow now," Gokarn added.

Referring to inflation, he said, the structural drivers of inflation are still strong and the RBI expects it to remain high through October and November.

The government is yet to announce the inflation data for October. Headline inflation stood at 9.72 per cent in September. Besides, food inflation, which account for over 14 per cent in the overall inflation basket, stood at a nine-month high of 12.21 per cent at the end of October 22.

"The structural drivers of inflation are still very strong. The fact that food inflation will remain high despite good monsoon is something that will shape our view on growth inflation balance for sometime to come," he said.

In its mid-year monetary policy, the RBI had said it could halt rise in key interest rates provided the inflation cools down.