After a phase of slowdown, the public sector banks are hopeful of a stable year ahead. The banks, which posted their fourth-quarter results recently, showed a trend of recovery, though their rising non-performing assets (NPAs) was a concern.

As the economy recovers from the downturn, banks have seen a rise in their NPA levels because of the restructuring done last year. There have been slippages across sectors depending on the banks? lending portfolio.

?Last fiscal did have an impact on the banking industry?s asset management, which the government and Reserve Bank of India had realised, as a result of which special dispensation for a limited period of time had been provided in the form of restructuring of accounts, giving breathing time to borrowers,? says HS Upendra Kamath, executive director, Canara Bank.

?Going forward, the challenge will be monitoring those restructured accounts and making sure that those do not slip,? he said.

During the fourth quarter, Union Bank of India registered a slippage of Rs 250 crore from restructured assets, taking the total slippages from restructured book to Rs 481crore

in FY10. As a result, gross NPAs increased 27.6% sequentially to Rs 2,671 crore.

For Indian Overseas Bank the gross NPA ratio increased 12.2% sequentially and 87.7% year-on-year (YoY) to Rs 3,611 crore during the fourth quarter.

For Indian Bank, the gross NPA remained stable sequentially at Rs 510 crore, while the net NPA increased 61.6% sequentially to Rs 145 crore. For Corporation Bank net NPA has gone up to Rs 197.2 crore from Rs 138.3 crore.

According to analysts, though the PSU banks? core income has improved their asset quality is still under pressure compared to the private sector banks.

?The PSU banks? asset quality will be under pressure for another one to two quarters. From the restructured accounts we are seeing around 10% turning into NPAs,? says Vaibhav Agrawal, banking analyst, Angel broking.

Among the South-based banks, Canara Bank incurred NPAs of Rs 1,799 crore for the fourth quarter against Rs 1,507 crore last year, while annually it increased to Rs 2,590 crore versus Rs 2,167 crore. For Vijaya Bank, its net non-performing assets as in March 2010 almost doubled to Rs 581 crore from Rs 292 in the same quarter last year. While State Bank of Mysore?s gross NPA increased to Rs 575 crore from Rs 368 crore during the year.

Looking into the current scenario, public sector banks have started employing different mechanisms to contain NPAs. Canara Bank has recently dedicated a monitoring cell to ensure NPA management. The Corporation Bank has focused on restructured accounts and formed a separate cell for monitoring retail and corporate accounts to keep NPAs under control. ?In addition there has also been increased interaction with customers where they have been counselled to conserve cash. Going forward, this year NPA management might be an issue but we can expect to ease up from next year,? says a top official of the bank.

Vijaya Bank has also strengthened its loan review mechanisms and is monitoring its stressed accounts, especially those that were restructured recently. The bank has also reinvigorated its recovery mechanism through legal provisions.

?Our peak level of NPAs is behind us. The NPA levels have been progressively declining since September 2009 and I expect the trend to continue beyond March 2010,? says Albert Tauro, chairman and managing director, Vijaya Bank.

Recently, the RBI had asked banks to maintain a minimum provision coverage ratio of 70% by September, which most of the banks are yet to achieve.