If you read the reports published by the Reserve Bank of India, the gross NPA or Non Performing Assets are valued at more than 1.5 US Billion dollars for Government-sector banks. It is 90 percent of the total NPA, including private banks.
The amount of NPA financial services is huge. That is the reason, it is a matter of concern.
What is NPA? As per the definition given by the RBI, if a loan is overdue for a period of more than 90 days, the interest amount or installment amount overdue on the loan is called a Non-performing asset.
The more will be the rise in NPA, the more harm it will do to the economy.
Reason for the increase in NPA
What could be the reason behind the phenomenal increase in NPA financing services Mumbai?
One reason is that Indian banks are following the recognition standards that are being followed by the banks. These standards were imposed after RBI highlighted them in the AQR-Asset Quality Review.
And there are some supporting reasons also, such as not having significant growth in the financial health of the financial companies.
Up to the year 2008, the economy in India was flourishing. Therefore, financial institutions gave extensive loans.
After the crisis in 2009, the profits declined and even the government banned a few projects. Environmental causes put a further load on it. The infrastructure sector got a major hit.
Also, the lending norms were relaxed for big corporates. Therefore, a lot of burdens was there.
As the NPA increases in the financial sector, it puts an adverse impact on their performance. It squeezes the earnings and brings down the profitability. Also, as the number of financial institutions reporting losses goes up, it reduces the overall credibility of the financial institutions in the market.
Therefore, it becomes mandatory to bring down the NPA ratio in the interest of the overall economy.
What are the measures to tackle NPA?
First, the RBI has pushed for IBC-Insolvency and Bankruptcy Code. It increases the hopes for faster resolution. It will make a change in the provision requirement; it means a higher portion of the provision will be there to make the condition of books better.
Second, the Credit Risk Management process is strengthened to increase sensitivity among the banks.
There has been amendment done in the banking laws to make the RBI more powerful.
Stricter NPA recovery process reduces the gap between NPA and recovery.