State Bank of India, India's largest commercial bank, stands to gain Rs 1,000 crore (Rs 10 billion) from the government's gilt buyback scheme, as the amount would be used in reducing its non-performing assets further to 3.2 per cent by this fiscal.

The bank is also anxiously waiting for Reserve Bank of India's licence to start the first Asset Reconstruction Company, which would assist banks to reduce their NPAs.

Elaborating on the gilt buyback scheme in July, SBI Chairman A K Purwar said: "We made a profit of Rs 1,000 crore and it will be solely used for provisioning of NPAs."

The government bought back high-cost illiquid gilts worth over Rs 14,000 crore (Rs 140 billion) as against a target of Rs 1,00,000 crore (Rs 1,000 billion).

SBI sold G-Secs worth Rs 7,000 crore (Rs 70 billion) while LIC sold Rs 2,000 crore (Rs 20 billion) securities.

Other major banks like Punjab National Bank, Bank of Baroda and Canara Bank sold off Rs 1,000 crore (Rs 10 billion) worth of gilts each.

"I expect NPAs to come down to 3.3 per cent by September 2003. NPAs may stand at 3.2-3.4 per cent by March-end 2004, the time by which RBI's new asset classification norms come into effect," he said.

SBI's NPAs was at 4.5 per cent of its net advances till March end 2003.

The bank expects to bring down its NPAs further through the ARC.

"We are expecting RBI licence at any moment. We hope to start operations of ARCIL by November 2003," Purwar said.

ARCIL is being promoted by SBI, ICICI Bank and IDBI with 24.5 per cent stake each, along with other private banks.