The Reserve Bank of India (RBI) is asking banks, specially those with high exposure

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to real estate and textile sectors, to classify some of the loans to large and mid-level companies as non-performing assets (NPAs).

Many of the accounts were classified as standard under RBI's special dispensation where banks could restructure an account more than twice and consider them as standard without having to make provisions.

“The regulator is perceiving that there is a risk in specific accounts and asking the banks to reclassify the standard accounts as NPAs so that banks undertake the necessary provisioning and start the monitoring and recovery process,” said a senior public sector banker who did not want to be identified due to the sensitivity of the issue.

The total NPAs stood at over Rs 65,000 crore at the end of March 2010. The RBI annual report 2009-10 also states that the banks have deviated from classification.

“The 2009-10 RBI annual inspection process of banks reviewed the manner in which the restructuring guidelines were implemented by banks to ensure that preconditions and safeguards prescribed in this regard had been complied by them. It was observed that though there were some deviations, these were not widespread and slippage in restructured accounts was not expected to be significant, especially in view of the recovery,” said the RBI annual report.

Banks have put on watch all large corporate accounts, as many of them are turning sour.

A bank has to classify any account overdue by 90 days as an NPA and keep 10 per cent of the total advances as provisions

The country’s largest lender, State Bank of India (SBI) has the highest amount of NPAs concentrated in its corporate accounts. It had total gross NPAs of Rs 20,825 crore at the end of the first quarter of 2010-11, of which Rs 6,958 crore came from corporate accounts, Rs 4,510 crore from retail loans, Rs 3,004 crore from agri loans and Rs 1,656 crore from international loans.

While recoveries are robust, banks are also putting in place new risk management techniques in place.

“We have a special vertical to monitor and oversee the stressed assets called the stressed assets management group, which has 12 branches. As soon as the branches come across an overdue it is moved to one of these specialised branches for follow-up action and recovery if needed,” said a senior SBI official.

The other banks with large pile of NPAs are the Indian Overseas Bank (IOB) and the Bank of India.

IOB, for example, has put in place credit audits. The bank designates at least three senior officers to keep an eye on any loan exceeding Rs 1 crore. The bank has about 3,000 accounts that are monitored by senior officers. At the end of the first quarter of 2010-11, the bank had total NPAs of Rs 3,900 crore. While the recoveries in the first quarter stood at about Rs 500 crore, the bank added fresh NPAs of around Rs 401 crore.

Bank of India (BoI) is another bank with large amount of bad loans. It had a gross NPAs of Rs 4,794.5 crore which is about 2.8 per cent of the bank’s advances.

“The board gets flash reports on all accounts of over Rs 1 crore. We have problems with smaller accounts like the SME accounts with outstanding of over Rs 10 lakh,” said a senior Bank of India official.