The Reserve Bank today warned that asset quality of banks continued to remain weak with gross non-performing loans rising to 9.6% in the year to March 2017 and may rise to 10.2% by next March.

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Gross non-performing assets stood at 9.2% in the September 2016.

The net non-performing advances (NNPA) ratio marginally increased to 5.5% in March 2017 from 5.4% in September 2016, the RBI said in its Financial Stability Report (FSR) released here.

The stressed advances ratio declined from 12.3% to 12% due to fall in restructured standard advances, the report added.

"While there is a fall in stressed advances ratio in agriculture, services and retail sectors, the stressed advances ratio in industry sector, however, rose from 22.3% to 23%, mainly on account of sub-sectors such as cement, vehicle, mining & quarrying and basic metals," the report said.

According to a macro-stress test for credit risks, banks gross NPAs may rise to 10.2%.

"The stress test indicated that under the baseline scenario, the average GNPA ratio of all commercial banks may increase from 9.6% in March 2017 to 10.2% by March 2018," the report said.

In FY17, accretion of new NPAs from restructured standard advances declined.

Large borrowers account for 56% of gross advances and 86.5% of GNPAs, whereas, top 100 large exposures account for 15.2% of gross advances, the report said.

Non-performing accounts within top 100 exposures contribute to 25.6% of GNPAs.

While the level of GNPAs of large borrowers increased between September 2016 and March 2017, their restructured standard advances declined during the same period resulting in a reduction of total stressed advances by 1.8%.

The category 2 of special mention accounts (SMA-2) as percentage of gross advances also declined across bank groups. The report further said banks' share in the flow of credit, which was around 50% in 2015-16 declined sharply to 38% in 2016-17.

However, the aggregate flow of resources to the commercial sector was not affected owing to a sharp increase in private placements of debt by non-financial entities and net issuance of commercial papers.

"The aggregate share of these two in total credit flow to commercial sector rose to 24.3% in 2016-17," the report said.