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The Decline in Bank NPAs

What’s in News
Recently, the government in a reply to a question in the Parliament stated there has been a reduction in Non Performing Assets (NPAs) due to various measures taken by the Government and the Reserve Bank of India (RBI).

Non Performing Assets (Meaning)
A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

In case of Agriculture or Farm Loans, the NPA varies for short duration crop (interest not paid for 2 crop seasons) and long duration crops (interest not paid for 1 Crop season).

Classification of NPAs
Banks are required to classify NPAs further into Substandard, Doubtful and loss assets.

•Substandard assets: Assets which has remained NPA for a period of less than or equal to 12 months.

•Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

•Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Latest Reports
A FICCI-IBA report said that the proportion of banks citing reduction in NPAs stood at 52 per cent for the January-June period as compared to last year of 43 per cent for the same period.

Among public sector banks about 55 per cent lenders have cited reduced NPA levels. About 63 percent banks reported decline in usually high NPA infrastructure sector. 57 per cent surveyed banks have seen reduction in NPA levels for engineering goods. A 92 per cent reduction level in NPAs was seen in metals, iron and steel in last six months.

Additional Data and Information
The Performance of the Public Sector Banks (PSBs) in particular and banking sector as a whole has improved in 2018-19 as per the latest economic survey.

The Gross Non-Performing Advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) decreased from 11.5 per cent to 10.1 per cent between March 2018 and December 2018 while for PSBs it declined from 15.5 per cent to 13.9 per cent.

Mainly due to improvement of Capital to risk-weighted asset ratio (CRAR) of PSBs, the CRAR of SCBs increased from 13.8 per cent to 14.0 per cent between March 2018 and December 2018.

Reason for Decrease in NPAs
Over the last four years, Government has taken comprehensive steps under its 4R’s strategy of recognising NPAs transparently resolving and recovering value from stressed accounts, recapitalising PSBs, and reforms in banks and financial ecosystem to ensure a responsible and clean system.

Enactments and Measures taken
The Insolvency and Bankruptcy Code, 2016 (IBC) has been enacted, which has provided for the taking over management of the affairs of the corporate debtor at the outset of the corporate insolvency resolution process.

Further, the Banking Regulation Act, 1949 has been amended to provide for authorisation to RBI to issue directions to banks to initiate the insolvency resolution process under IBC.

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act has been amended to make it more effective.

Six new Debts Recovery Tribunals have been established to expedite recovery.

Under the PSB Reforms Agenda, PSBs have created Stressed Asset Management Verticals to focus attention on recovery.

Way Forward
•Further recapitalisation of banks.

•Recovery process should be strengthened further.

•Project evaluation should be improved and modern techniques and expertise can be brought.

•Risk management should improve further.



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