Managing Non Performing Assets in Indian Banking Industry |
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In 1996-97, the GNPA in the Indian banking industry was 15.7%. This fell to 2.36% at the end of financial year 2010-11 due to various reforms introduced by the RBI and GoI, such as implementation of the reforms suggested by the second M. Narasimham Committee on the banking sector in 1998, enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Credit Information Companies (Regulation) Act, 2005 , etc. , ... |
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| There were many environmental factors that were responsible for the high growth of NPAs in India. One of the main reasons was the US financial crisis in 2008 which had a global impact. In addition to this, a fall in commodity prices and dumping from China had decreased the competitiveness of Indian manufacturers, leading to a reduction in the cash flow of the manufacturers. This had made it tough for them to repay their loans and this in turn resulted in the growth in NPAs... |
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| In September 2013, Raghuram Rajan (Rajan) became governor of the RBI. In his very first speech as governor, he said, “We have to improve the efficiency of the recovery system, especially at a time of economic uncertainty like the present [2013]…. I have asked Deputy Governor Dr. Chakrabarty to take a close look at rising NPAs and the restructuring/recovery process, and we too will be taking the next steps shortly. RBI proposes to collect credit data and examine large common exposures across banks... |
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| In November 2019, the Securities and Exchange Board of India (SEBI), the regulator of the Indian securities market, issued a circular asking listed banks to disclose any material divergence in their NPAs as soon as possible but not later than 24 hours after the receipt of the ‘Risk Assessment Report’ (RAR) from the RBI. SEBI’s circular stated, “These disclosures in respect of divergence and provisioning are in the nature of material events/ information and hence necessitate immediate disclosure.” Before the November circular, banks used to disclose such divergences in quarterly results..... |
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| In May 2016, the Indian parliament passed the long-awaited ‘Insolvency and Bankruptcy Code, 2016’ (IBC) which gave more powers to the creditors and ensured timely winding up of unviable projects and faster recovery of money. IBC replaced the old bankruptcy law. The provisions of this law would be applicable to companies incorporated, limited partnership firms, partnership firms, and individuals. This law made it easier to do business in India as it resolved the problem of having to deal with multiple laws that a person who wanted to start a business in India faced... |
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| Sitharaman, who became the new Union Finance Minister of India on May 31, 2019, asked banks to follow the circular of the RBI in which the central bank had directed banks to not declare the stressed loans of Micro, Small & Medium Enterprises (MSMEs) as NPAs till March 31, 2020. Sitharaman said, “We have told the banks that till March 31, 2020, no stressed-asset MSME will be declared an NPA. We have also requested that the banks should make an effort to sit with such stressed-asset MSMEs and work it out with them to get them out of that situation.” ... |
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Exhibit I: Indian Banking Structure
Exhibit II: Aggregate NPA of Banking Services Industry (in Rs. million)
Exhibit III: Return on Assets and Return on Equity of SCBs: Bank Group-Wise
Exhibit IV: Top 10 Banks Writing Off Bad Debts in 2015
Exhibit V: Format to Report Divergence in Asset Classification and Provisioning for NPAs
Exhibit VI: Bandhan Bank Stock Price (Adj. close**) Movement since Inception (Currency in INR)
Exhibit VII: Profitability and Liquidity Ratio of Bandhan Bank vs. Its Peers (FY 2016-2018)
Exhibit VIII: Bandhan Bank’s Growth Parameter Assumptions for FY2019-2023
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