A steep rise in non-performing assets (NPAs) of the banks is forcing them to cherry pick while lending to industry.

Besides the problem of burgeoning bad debts, banks are also uncertain whether the profits of companies are sustainable due to the prolonged global uncertainties in Europe and the US. Domestic input costs are too high for companies in various sectors of steel, cement, real estate and gems & jewellery to

remain profitable at the end of the current financial year.

Most of the bad debt for the public sector banks is coming from the large corporate and mid-corporate segments. In the first quarter, a major chunk of the credit growth came from the infrastructure sector. Bigger companies such as Reliance Industries and Tata Motors are looking at external commercial borrowings to meet their credit requirements.

For instance, the lending during the first quarter for IDBI Bank was negative. It was around Rs 1,823 crore less than the previous quarter (the March 2010 quarter).

IDBI chief financial officer P Sitaram said, “The major focus this year will be on meeting the lending requirements for the priority sector which is 40 per cent of total advances and also to improve the quality of our assets.” In the last financial year, the bank was able to clock only 34 per cent in total advances to the priority sector, a concession that was allowed because it was earlier a development finance institution.

Already, the latest IIP (index of industrial production) of July points to contraction in production in cement and steel at 0.2 and 0.9 per cent, respectively, from the year-ago period. Exports growth has also moderated to 13.2 per cent in July. All these have cast doubts on growth of the industrial sector. The IIP in July was marginally higher (at 3.9 per cent) than the June figure but the strong growth in crude and petroleum refining has masked contraction in certain other segments.

“We will cherry pick while giving credit to the industry as we need to be confident of lending to various sectors. One of our top priorities now is to improve the asset quality, ” said a senior SBI official who cannot be quoted because he is not authorised officially to speak to media.

State Bank of India (SBI), which controls about 16.65 per cent of the total advances of the banking industry, has a gross non-performing assets (NPAs) of Rs 20,825 crore, which is over 3 per cent of the total advances. The largest chunk of this comes from corporate accounts at Rs 6,958 crore, followed by SME at Rs 4,694 crore, retail at Rs 4,513 crore and agriculture at Rs 3,004 crore. The bank has also restructured about Rs 16,796 crore of standard assets so far. SBI has operationalised 122 recovery centres throughout the country for speeding up the recovery process.

KR Kamath, CMD of Punjab National Bank, is, however, optimistic about growth. “Credit quality will be the top priority, but we are hopeful about a robust growth in economy. We are giving credit after a due diligence.”

PNB, the second largest public sector bank, is also high on NPAs. The bank has a gross NPA level of Rs 3614 crore at the end of the first quarter and it has restructured debts of close to Rs 12,354.97 crore.

The largest private sector lender, ICICI Bank, had gross non-performing assets of Rs 9,977 crore at the end of the first quarter, about Rs 350 crore higher than the previous quarter. Of this, Rs 6,630 crore came from retail assets of the bank. The total restructured loans of the bank amounted to

Rs 3,737 crore during this period.

The latest figures from the Reserve Bank of India show that for the fortnight ended August 13, the credit growth of the banking sector is only Rs 11,500 crore, lower than some robust numbers shown up in the June quarter.