Sberbank CEO German Gref warned that a second wave of the crisis was about to sweep over the banking sector on Wednesday, two days after Prime Minister Vladimir Putin told State Duma members that banks were out of trouble.

Gref said bad debt is piling up as worsening economic conditions make it more difficult for businesses and individuals to meet loan payments, which in turn leaves banks with insufficient cash to extend new loans.

"The crisis is just beginning for the banking industry ... and it will arrive from the real sector," Gref, who runs the country's largest bank, state-owned Sberbank, said at a conference at Moscow's Higher School of Economics.

Gref's comments came amid sparring between top bankers and government officials over the health of the banking system. Bankers say the crisis mounting in the real economy will soon engulf the banking system with a slew of defaults and cause hundreds of small lenders to close. But Putin, Central Bank Chairman Sergei Ignatyev and even relatively more pessimistic Finance Minister Alexei Kudrin maintain that the sector is on the road to recovery.

President Dmitry Medvedev stepped into the fray Wednesday, calling for increased government regulation of banks' lending rates, which shot up during the fall when lenders lost access to Western credit and faced serious liquidity shortages.

Speaking at a meeting with United Russia leaders, Medvedev said regulations, which could include subsidized interest rates, would prompt banks to increase their lending activity to the credit-deprived real sector.

But with overdue loans in the banking system rising by 20 percent a month, it is "impossible" for bankers to expand their loan portfolios anytime soon, Gref said. Banks must instead put aside more money in loan-loss provisions, he said.

Bank assets fell by 1.9 percent in February, and as of March 1 bad loans had risen by 94.5 billion rubles ($2.8 billion) to 2.8 percent of the banking sector's total loan portfolio, up from 2.3 percent the month before, the Central Bank said in a report this week.

Both government officials and private lenders say the level of nonperforming loans is likely to hit 10 percent by year-end.

"We are pumping practically all of our profit from the fourth and first quarters into provisions," Gref said.

Gref, a former economic development and trade minister, rebuked the government for not giving due attention to the threat that overdue loans were posing to the banking sector.

"Slow [government] action allows the banks to hide bad debts and leads to the accumulations of bad assets," Gref said. "The issue of bad debts is the key and most painful issue for the government during the second stage of the crisis."

Other top bankers would agree. Pyotr Aven, head of Russia's largest private lender, Alfa Bank, has said overdue loans could account for up to 20 percent of all loans in the system by the end of the year.

Bad loans at VTB, the second-largest state-owned bank, could increase to 8 percent of its total credit portfolio by the end of the year, bank head Andrei Kostin said last week.

But Russia's troubled assets are, in fact, much higher than stated if they are calculated according to the International Monetary Fund's method, as they are in the West.

In the West, if a debtor does not meet a payment for more than 90 days, the entire amount of the loan is counted as overdue. In Russia, the Central Bank considers a loan bad if an individual installment is overdue by a single day.

In addition, a bank's real level of bad loans is often concealed by debt restructuring and the practice of selling bad loans to debt collection agencies -- sometimes subsidiaries of the banks, said Alexander Danilov, senior banking analyst at Fitch Ratings.

"There may be a significant difference between real impairment and what the banks report," Danilov said.

He said banks have been persistently stressing their gloomy, troubled-asset outlooks in recent weeks in hope that the government will adopt preventive measures by recapitalizing them.

"The banks want to be ahead of the game. They want the government to be on board in case things get really bad," Danilov said.