Take steps to reduce NPAs in Banking sector


By: Himanshu Gulati

The Non-Performing Assets (NPA) crisis has continued to grow throughout, both in terms of absolute amount and as percentage of advances.  In the year 2018 it increased to 9.61 Lac Crores as compared to 2.51 Lac Crores in 2014. RBI has apprised that it does not have information as regards to NPAs as on May 2014.

As of December 2017, Non-Performing loans ratio of Indian banking Industry stands at  9.3% as compared to 3.8% in 2014. It was 2.25% in 2011, CEIC Data shows. Gross NPAs has jumped to 11.2% in FY18, RBI Report shows.

Parliament enacted Insolvency and Bankruptcy Code, 2016 to ensure time time-bound settlement of insolvency and lowering NPAs. The BJP government has notified the ordinance to the Banking Regulations Act, enabling RBI and banks to initiate bankruptcy proceedings against chronic defaulters. Recovery through various mechanisms has been increased to 45% (as percent of total amount filled under IBC) as compared to 12.4% in 2014, RBI Report states.

Five new Debts Recovery Tribunals (DRTs) have been established to expedite recovery, the official website shows.The specific objective is to provide expeditious adjudication and recovery of debts due to Banks and Financial Institution. Presently 38 DRT’s and 5 DRAT’s (Appellates) are functioning in India.

Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (also known as the SARFAESI Act), the recovery rate has been 24.8%, followed by 5.4% via debt recovery tribunals (DRTs) and 4% via Lok Adalats.

Since the NPAs have grown from 3.8% in 2014 to 11.2% in 2018, a three-fold increase, it is contrary to the stated promise of reduction. Hence, the promise is considered “Broken”

Definition: A non-performing asset (NPA) refers to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest.

How to calculate NPL ratio? : The calculation method for the NPL ratio is simple: Divide the NPL total by the total amount of outstanding loans in the bank’s portfolio.

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