Banks can't take heart from improving recoveries as RBI warns of possible rise in bad loans

Experts suggest the central bank should hike the key rate by at least 100 basis points to control inflation which has hit multi-year high recently.

Consecutive hikes in interest rate force banks to raise their lending rates. This, amid a relatively slow growth rate, leads to impact on the borrowers' capacity to pay debt.

Das told CNBC-TV18 that both public sector and private banks have been alerted on the need to maintain NPAs in check. He highlighted that the overall gross non-performing assets (GNPA) for the banking sector are at 6.5 percent. However, on a positive note, collection efficiency has improved for banks, so the situation is not grave as of now, mentioned Das.

“You see the GNPA or the gross NPA remains at 6.50 percent. The currency and finance report was basically saying that this is an area which has to be watched, because it depends on again, so many factors — how the salaries of people are coming, the EMIs and other payments,” he said.

“The collection efficiencies have improved in almost all the banks, and they are almost at 100 percent," said Das, adding that lenders have raised substantial amount of capital during the COVID period and have various capital raising plans going forward as well.

On being asked if the interest rate hikes will have a dampening effect on banks’ credit offtake, Das explained that there are numerous factors besides interest rate which affect a lender's credit growth such as consumption, demand, the overall macroeconomic fundamentals and so on. He expects bank credit growth to remain steady.

“Credit offtake depends on a multiplicity of factors. It depends on how well the economy is doing, how the private consumption, private demand is picking up," said Das.

"I think bank credit offtake should remain steady. The latest number I have... is of bank credit growth being about 11 percent year-on-year,” said Das.