Answer:

The entire Indian economy is witnessing a rise of Non-Performing Assets (NPAs). More than Rs. 7 trillion worth loans are classified as Non-Performing Loans in India, which roughly translates to near 10% of all loans given. The key reasons cited for this are: unplanned expansion of Indian corporate houses during boom periods and the Global financial crisis impacting corporate performance and thus, stressing their balance sheets.

The severity of NPA problem is much higher in Public sector banks (PSBs) as compared to private banks because:

♤ PSBs have more exposure in the sectors — infrastructure, steel, textiles, aviation, and mining —which have contributed towards a big rise in NPAs.

♤ Inefficient borrower screening, credit appraisal and post-disbursement supervision.

♤ Lack of effective loan recovery mechanisms.

Such huge levels of NPAs cripple the whole economy as banking sector raises interest rates, reduces funding to nation-building projects resulting into increased unemployment and lowering of GDP growth. To address the problem of NPAs, the government took several measures such as:

♤ Mission Indradhanush to transform PSBs.

o Established Bank Board Bureau for appointments to PSBs, developing strategies for raising funds and overseeing consolidation of PSBs.

♤ Announced Rs. 70,000 Crore for recapitalisation of banks.

♤ RBI has over the past few decades come up with a number of schemes such as Corporate Debt Restructuring (CDR), formation of Joint Lenders’ Forum (JLF), flexible structuring for long-term project loans to infrastructure (or 5/25 Scheme), Strategic Debt Restructuring (SDR) scheme and Sustainable Structuring of Stressed Assets (S4A) to check the menace of NPAs.

♤ Asset Quality Review was conducted for early identification of the assets and preventing them from becoming stressed by appropriate action.

♤ Insolvency and Bankruptcy Code Act, 2016 to tackle the Chakravyuaha challenge of the exit problem in India.

♤ The Banking Regulation Act has been amended to give the RBI more powers to monitor bank accounts of big defaulters.

♤ The SARFAESI Act, 2002 was amended in 2016 for quick recovery of stressed assets. However, these measures have seen limited progress in tackling NPAs.

♤ The schemes like S4A has limited applicability as most corporate defaulters failed to meet the standards. It cannot be applied to all cases of stressed exposure. It can be applied only to operational projects and not to under construction projects.

♤ The recapitalisation amount has fallen short of the amount needed by banking sector.

♤ The bank officers are too cautious with debt restructuring due to the fear of anti- graft charges.

♤ The time bound manner in which Insolvency and Bankruptcy code aims to resolve cases have been lauded by the experts. However, the long term effects are yet to be seen.

Several experts point towards further increase in NPAs in Indian banking sector. To address this problem, the government and banking sector together should consistently work on remedial measures like the BAD Bank and other structural reforms. The Government is also bringing Financial Resolution and Deposit Insurance Bill for the insolvency of financial firms including banks.