Narendra Modi government’s Insolvency and Bankruptcy Code (IBC) was hugely celebrated after the successful resolution of bankrupt Bhushan Steel and the government even claimed that NPAs (non-performing assets) worth more than Rs 1 lakh crore are set to be resolved soon. But the celebration seems to be short-lived as total NPA of 26 banks as on March 31 stood at whopping Rs 7.31 lakh crore — resolving which could be a daunting task.

It must be recalled that a surge in NPAs was expected after Reserve Bank of India laid down stricter rules for recognition and resolution of the bad loans. While not all of the cases are going to undergo resolution under the IBC law, it still is a worrying picture. So far, 26 banks have announced their results. Rocked by a massive fraud, Punjab National Bank (PNB) reported the highest loss in India’s banking history, while largest lender State Bank of India also reported a record loss.

“The NPAs of these 26 banks were Rs 7.31 lakh crore and have increased by Rs 2.5 lakh crore this year over March

2017,” a report by Care Ratings said. After moderating from 9.04% in June 2017 to 8.93% in September 2017, the ratio has ascended subsequently to peak at 10.14% in March 2018, the report added.

Public Sector Banks reported higher NPAs than private banks. While the ratio remained stable in the range of 11 12% in the first three quarters of FY18, it has increased by 163 basis points in Q4 to 13.41% to Rs 6.16 lakh crore while the NPAs at private banks stood only at Rs 1.15 lakh crore or 4.4%.

(Courtesy: Care Ratings)

The silver lining to the bad loans cloud is that now India has a robust system in place to deal with the banking crisis. While the law is testing waters, it could be helpful in resolving a bulk of NPAs in future, Punit Dutt Tyagi of executive partner at Lakshmikumaran & Sridharan Attorneys told FE Online recently.

Moreover, there were some cases where defaulting companies cleared their due in fear of losing control or being barred from bidding for other bankrupt companies. “We have seen several instances where the corporate debtors have paid the default amount after trigger application is filed before the adjudicating authority but before its admission. Some of them pay up as soon as they receive a notice from an operational creditor,” Bankruptcy Board chief MS Sahoo told news agency PTI.