Senior bankers have interpreted the finance ministry's move to convene the high-level meeting on the eve of the busy season credit policy as extremely significant. The Reserve Bank of India is likely to announce its traditional busy season credit and monetary policy in the last week of October.

According to sources in New Delhi, Janardhnan has chalked out a three-point agenda to discuss at the meeting. The issues are: non-performing assets in banks and measures for reducing them, priority sector lending and credit delivery under government sponsored credit schemes. Senior bankers said the phenomenon of non-performing assets figures high on the agenda. "The main purpose of the meeting is todiscuss the deteriorating quality of assets in the face of economic slowdown. Even though the ministry as well as the Reserve Bank is in favour of tightening the asset classification norms, bankers are lobbying hard for dilution of the NPA norms in the context of industrial downturn. Against this backdrop, the meeting assumes significance," a senior banking sector analyst said.

The profitability of the public sector banks -- which is expected the come under tremendous pressure this fiscal -- is also likely to be discussed at the meeting. According to senior bankers, growing NPAs coupled with higher provisioning on accout of the rise in the yield to maturity (YTM) of government securities and wage settlement of bank employees will affect the bottomlines of most of the banks this fiscal. The slow credit offtake has also cast its shadow on the banks' balance sheets at a time when their spread is under pressure on account of high deposit costs and relatively low prime lending rates (PLR).

Till the firstfortnight of September, the banking industry showed a negative growth in non-food credit to the extent of Rs 3,799 crore while the aggregate deposits grew by Rs 49,423 crore. The year-on-year non-food credit growth has been pegged at Rs 40,311 crore or 15 per cent against y-o-y deposit growth of Rs 1,18,632 crore (22 per cent).

The major worry of the ministry is about the NPAs. The foreign institutional investors have set the alerm bells ringing on the huge potential of Indian banks' and financial institutions' assets turning sticky in the face of the current slowdown in the economic and industrial growth. An internal study of one of the FIIs has sounded a red alert on four most vulnerable areas in Indian industrial sector: iron and steel, textile, chemicals and newly set up private sector refineries. The brokerage has compiled a list of potential defaulters among India's top 200 corporates operating in these vulnerable sectors. These companies have a potential to default on Rs 10,800 crore of bank loansand Rs 27,300 crore of loans from institutions.

Even though the situation does not appear very alarming (at least not for banks), it would still be foolhardy to underestimate the problem of NPAs, the study pointed out.

MUMBAI: The banking industry has underestimated its non-performing assets (NPAs) by a whopping Rs 3,862.10 crore as on March 1997, a confidential Reserve Bank of India document says. The industry is also estimated to have under provided to the extent of Rs 1,412.29 crore. The worst "offender" is the public sector banking industry. Nineteen nationalised banks along with the State Bank of India and its seven associate banks have underestimated their NPAs by Rs 3,029.29 crore.

While the RBI estimates the PSU banks' NPAs at Rs 46,907 crore, the actual NPAs shown by these banks' books are much lower at Rs 43,877.89 crore. The difference between the RBI estimates and actual provisioning in PSU banks is pegged at Rs 1,074.69 crore in March 1997.