Strengthening Indian Banking Industry through NPA Management

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EXCERPTS

NON-PERFORMING ASSETS IN INDIAN BANKING INDUSTRY

In 1996-97, the GNPA in the Indian banking industry was 15.7%. It fell to 2.35% at the end of March 2011 due to various reforms introduced by the RBI and the Government of India, such as implementation of the reforms suggested by the second M. Narasimham Committee on the banking sector in 1998, enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and Credit Information Companies (Regulation) Act, 2005 etc. However, due to various reasons, the total stressed assets, which stood at 9.8% at the end of March 2012, increased to 11.06% by March 2015 and then to 14.5% by the end of December 2015. , This affected the growth in the net profit of the SCBs, which declined from 2011-12 and led to a fall in the ROA and the ROE of banks

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REASONS FOR HIGH GROWTH IN NON-PERFORMING ASSETS

There were many environmental factors which 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 the Indian manufactures, which led to the reduction in cash flow of manufacturers which made it tough to repay their loans. This led to the growth in NPAs...

RAGHURAM RAJAN’S POLICIES ON NPAs

Rajan became the RBI governor in September 2013 and from day one, he focused on the NPA problem of the Indian banking system. In his very first speech as the 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 next steps shortly...

EFFORTS OF THE INDIAN GOVERNMENT

To give a boost to the Indian banking sector, Arun Jaitley (Jaitley), Finance Minister of India, came up with a seven-pronged plan called ‘Indradhanush’ in August 2015. The seven elements of this plan were appointments, board of bureau, capitalization, de-stressing, empowerment, framework of accountability, and governance reforms...

LOOKING AHEAD

Some experts stated that the various steps taken by the RBI and the Government of India would definitely strengthen the Indian banking system...

EXHIBITS

Exhibit I: Trend in Gross NPAs in Indian Banks

Exhibit II: Indian Banking Structure

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: Insolvency and Bankruptcy Code, 2016