Industry body Assocham has asked the government to encourage mergers of smaller banks to create larger ones in order to mitigate risks arising out of surge in non-performing assets (NPAs). The chamber said, on an average there was a 26 per cent rise in net NPAs of 21 public sector and commercial banks during the second quarter of the current financial year as against the same period last year.As per its analysis, the aggregate NPA of 21 banks – 19 public sector banks and two large private banks – increased to 25,137 crore rupees in the second quarter of 2009-10 from 19,920 crore rupees against the year ago period.However, the average capital adequacy ratio (CAR) of the banks improved to 13.68 per cent in the July-September quarter from 12.08 per cent in the previous year. Improvement in CAR reflects better financial health of banks while increase in NPAs is a matter of concern as it directly affects the solvency and profitability of banks.