Non-performing loans (NPLs) to gross loans fell from 17% in CY03 to 7.7% by September 2007 and net NPLs from 7% to 2.3% over this period. Concurrently, provisions to NPLs ratio improved from 64% to 72%. Bank’s capacity to absorb losses has grown as net NPLs to capital ratio declined from over 150.5% in CY01 to merely 11.4% in September 2007.
Furthermore growth and sector diversification of loan portfolio has helped to reduce the risk of overexposure. (iv)  Market risk has different dimensions as banks are engaged in a variety of businesses that expose them to interest rate, foreign exchange and equity market risks etc. The principal market risk facing banks is interest rate risk.