NPAs pose a troublesome situation for the banking industry in India. The government needs to pull its socks up to address it.

By Anshia Dutta

As per the data by the Reserve Bank of India, combined gross non-performing assets (NPAs) of scheduled commercial banks (SCBs) have dipped slightly from 10% as on June 30, 2017, to 9.8% for the quarter ending September 30, 2017. On the other hand, the Financial Stability Report (FSR) that was released by the RBI in December 2017 stated that the gross NPAs of SCBs increased to 10.2% in September 2017 as compared to 9.6% in March 2017.

India’s struggle with the NPAs

Non-performing assets are loans in the books of financial institutions, the payments of the principal amount or interest on which have not been made as per the stipulated time period. These are also assets which cease to generate income for the banks.

India has the second-highest ratio of NPAs amongst the major economies of the world. Over the past five years, India’s bad loans for the public sector banks have increased by 311.22% and by 269.47% for the private sector banks. The stressed assets stood at a staggering ₹8.40 lakh cores as on 30th September 2017 up from ₹8.29 lakh crores as on 30th June 2017. Compared with the June 2017 figures, it was stated that 21 public sector banks (PSBs) saw their bad loans remaining flat at ₹7.33 lakh crores in September 2017. The sticky assets of private banks, on the other hand, surged by 10.5% to a whopping ₹1.06 lakh crores in September 2017.

A dismal picture for banks

Among the public sector banks, State Bank of India tops the list of SCBs having the highest NPAs with around ₹1.88 lakh crores of bad loans. Punjab National Bank and Bank of India occupy the second and the third spot with ₹57,630 crores and ₹49,307 crores respectively. Bank of Baroda, Canara Bank, and Union Bank of India followed suit with ₹46,307 crores, ₹39,164 crores, and ₹38,286 crores respectively.

Among the private sector banks, ICICI Bank had the highest number of stressed assets worth ₹44,237 crores by the end of September 2017. It was followed by Axis Bank, HDFC Bank, and Jammu and Kashmir Bank with ₹22,136 crores, ₹7,644 crores, and ₹5,983 crores respectively. Gross NPAs of Yes Bank doubled from ₹1364 crores to ₹2720 crores and Axis Bank’s bad loans ascended by 24% during the same period. The basic metals and cement industries constitute around 45.8% and 34.6% respectively of the bad loans followed by the automobile, infrastructure, and construction industries.

Measures to address the menace of growing bad loans

In order to combat the growing NPAs, the government has taken a number of steps over the years. The government had announced a recapitalisation plan of PSBs, with a value of ₹211,000 crores in October 2017. NS Vishwanathan, one of the deputy governors of RBI had said, “While the on-going deleveraging in the heavily indebted parts of the corporate sector and muted credit growth in the public sector banks pose a risk to growth, the decisive recapitalisation move by the government could provide the much-needed fillip to private investment going forward. If we keep our financial system, especially, the banking sector, in good shape, we can catch the tailwinds of the external conditions. That would mean keeping the economy on an even keel in terms of macroeconomic balance.”

Secondly, the government enacted the Insolvency and Bankruptcy Code, 2016 for effective action against defaulters. Earlier, the SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) and the RDDBFI Act (Recovery of Debts due to Banks and Financial Institutions) were also passed. Along with this, DBTs (Debt Recovery Tribunals) were also set up.

Shiv Pratap Shukla, the Minister of State for Finance said, “For strengthening the balance-sheets of PSBs, under the ‘Indradhanush plan’, the government has provided for ₹70,000 crore till 2018-19, as a result of which, despite high NPA and consequential provisioning, banks were successful in complying with capital adequacy norms.”

He added, “Cases have been instituted under the Code in the National Company Law Tribunal (NCLT) in respect of the twelve largest defaulters, amounting to about 25% of the NPAs of the entire banking system. Wilful defaulters and persons associated with NPA accounts have been barred from participating in the process underway in NCLT.”

Featured Image Source: Pexels

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