New Delhi, Aug 14 (IANS): Non-performing assets (NPAs) of banks are likely to go up as lending to certain sectors like telecom, airlines and agriculture might turn into bad loans, a study by an industry chamber shows.

"Though banks have shown improvement in asset quality over the years, fast-changing macro-economic scenario has thrown up renewed risks of accounts going bad in certain vulnerable sectors like telecom, airlines, small and medium enterprises, and agriculture," the Associated Chambers of Commerce and Industry of India (Assocham) said in a study report.

There still remains a considerable scope for improvement in asset quality of Indian banking institutions and regulatory norms associated with them, it said.

Gross non-performing assets of all scheduled commercial banks in India have declined to nearly two percent of advances as compared to 15 percent in late 1990s.

In value terms, gross NPAs increased at a compound annual growth rate of less than one percent since 2000-01 compared to 23 percent growth in gross advances.

According to the study conducted jointly by Assocham and investment bank Resurgent India, government-run banks led the improvement in asset quality over the last decade.

Existence of high NPAs in one sector can lead to drying up of credit flow to others. This obviously leads to a contagion effect on the economy as a whole - especially if it is an important sector like housing, automobile, micro-finance and financial services, the report said.

The report suggested adequate insurance schemes for small and medium enterprises (SMEs) and the agricultural sector to provide a meaningful cushion if the account turns bad."

"It is also imperative to favour public sector banks through taking over of bad loans from these accounts and compensating for restricted lending capacities," it said.