Banks witnessing a rise in NPAs in the SME sector

Some of the leading nationalised and private banks in India are saddled with a significant rise witnessed in non-performing assets in the SME sector for the last quarter that ended in December 2009. Banks such as the State Bank of India, IDBI Bank and Axis Bank have recently reported a surge in bad loans in the SME segment.

"Although banks lowered interest rates and expressed willingness to provide loans to small businesses, it was seen that a large amount of loans extended to the SME sector in India during the December quarter turned bad," said Arghya Banerjee, senior analyst at SKP Securities, a small-sized brokerage firm in Kolkata.

Axis Bank witnessed a 49% year-on-year growth in gross NPAs, amounting to Rs 1,173.50 crore. The bank's percentage of gross NPAs to its total advances has risen from 0.9% to 1.23%, while the net NPA of the bank has surged from 0.39% to 0.46%.

"The increase in bad SME loans of banks is concerning as this will eventually bring down the revenue of the banks," said Avinash Jajoo, a retail investor and director of a financial tax firm, Tax Consultants.

A significant rise in gross NPAs has been witnessed by IDBI Bank as a percentage of the total loans went up from 1.7% to 2.07%.

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