In its annual report, Reserve Bank of India (RBI) said the banking system is adequately capitalised despite the rising trend in the gross non-performing assets (NPA).

The gross NPA rose to 4.4 per cent of the total advances by March 2014 from 3.42 per cent a year ago.

On the back of slowdown in the economy and emergence of sector-specific issues amid structural bottlenecks in economy, the asset quality of banks declined.

In June 2013, the ratio of gross NPA to gross advances for commercial banks rose to 3.92 per cent from 2.36 per cent in March 2011.

The report shows that the new private sector banks managed to lower their NPA ratio while state-run banks accounted for the disproportionate share in this increase in NPAs.  

According to a stress test conducted by RBI, the gross NPA ratio of banks may rise to 4.4 per cent by March 2014 under severe stress scenario.

The report highlighted that even under such a scenario the system level capital adequacy ratio of banks will be 12.2 per cent only, which is well above the required 9 per cent .