Rating agency Crisil said due to extensive restructuring activity as well as a stronger-than-expected recovery in economic growth, the reported NPAs of the banking system were unlikely to rise to the extent that were previously expected.

Bankers do speak of the risk of some restructured loans turning into NPAs in the next few quarters due to unbearable financial burden on companies. The Reserve Bank of India (RBI) in December 2008 had allowed banks, as a one-time measure, to restructure loans given to companies facing temporary cash flow problems due to external adverse circumstances. These loans were to be treated as standard assets in bank books.

According to Crisil, till mid-2009, banks restructured around 4.2 per cent of their advances. Slippages from these cases may put stress on the asset quality of the banking system over the medium term.

For SBI, out of Rs 16,796-crore worth loans restructured under RBI dispensation up to June 2009, Rs 996 crore have slipped into the NPA category up to December 2009, taking the slippages ratio to 5.93 per cent.

Though not irrecoverable, these restructured cases may need another round of support. Such cases will be treated as sub-standard assets under RBI norms. These slippages could be for a short period.

A Bank of India official said that the problems of companies were earlier not addressed in depth. Things (restructuring) were done in a hurry based on inputs of companies and their managements. For such cases, the unaddressed issues will surface in coming quarters, warranting another round of support from banks. Such loans will have to be treated as non-performing loans.

Elaborating on concerns over asset quality emanating from small players in real estate, Rajiv Deoras, head of wholesale banking at Dhanlaxmi Bank, said while the supply of commercial real estate space was huge, there was low demand.

Large players in the realty sector have been able to manage the slowdown in demand and resource crunch. Small players with limited holding power and mounting repayment obligation to banks and suppliers posed higher risk, he added.

One of the public sector banks which suffered the most due to a sharp rise in non-performing assets in the third quarter is Chennai-based Indian Overseas Bank. Bank of India suffered majorly in the second quarter. It saw a gross slippage of Rs 837 crore during the quarter. Its Executive Director YL Madan said real estate, textiles industry and metals accounted for 50 per cent of slippages.

Another category putting strain on bank balance sheets is SMEs. These units have been more vulnerable to economic downturn and continue to show stress. Most have tried to maintain repayment record despite a sharp fall in demand and revenues. But, as adverse patch stretched longer, they are finding it very difficult to make regular payments due to liquidity crunch.