GS paper 1
Source: Indian Express
Syllabus GS Paper III: Indian Economy (Issues associated with the banking system in India)
Directions:
Context: This is taken from the editorial section of Indian Express. Go through it once, you can use it for value addition.
Trends in NPA
- By the late 2000s, NPAs (as a percentage of gross advances) had decreased to less than 3.5%.
- The downward trend, however, did not continue as NPAs began to rise in 2011 and peaked at 11.18% in the fiscal year that ended in 2018.
- NPA has now reduced to about 6% (2022)
Reason behind the rise in NPA during the period of 2011 -16—
- Poor management and governance issues stemming from government ownership of Public sector Banks.
- Higher exposure to commodity-sensitive markets such as iron and steel and textiles.
- Difference in the Business model:g. Public Sector banks (PSBs) have to cater to rural and poor segments as well.
- Fall in international commodity price: The rise in NPAs from 2011 onwards coincides with the fall in international commodity prices, thereby reducing the revenue of many Indian firms.
Thus, a large proportion of NPAs arose because of exogenous shocks, which have nothing to do with management and governance issues in public sector banks only.
What are NPAs: 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.
- Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
- Substandard assets: Assets which has remained NPA for a period 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.”
Insta Links
Mains Links:
Q. Enumerate the steps taken so far to expedite and enable the resolution of NPAs in India. Critically analyse the potential of National Asset Reconstruction Company Ltd (NARCL) as the “Bad Bank” in addressing the issue of NPAs.
Q. How far can financial inclusion help in containing the high level of NPAs of banks in India? Substantiate your views with two examples. (200 words)
Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (UPSC CSE 2017)
(a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.
(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
(d) It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.
Answer: B
