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What could be the status of NPA in the Indian economy post-COVID-19?

Posted Date: 27-01-2021 Posted By: user

The lockdown situation post-March 2020 has impacted every sector. The short-term impact everybody has seen, but economists say that the long-term effects will be far more severe than expected.

It has been observed that almost half of the outstanding bank loan accounts opted for a moratorium, the relief measure declared after a lockdown in India. 

It is estimated that despite that NPA in india will show a surge in the coming years. The gross NPA ratio of all commercial banks will rise up to 12.5 percent by the end of the financial year. It means, there will be strong measures required to improve npa management.

RBI draws a further gloomy picture by speculating the NPA ratio reaching up to 15 percent.  

What could happen in the future?

The actual impact of the moratorium is still unrated. It is uncertain and evolving. How it will affect ultimately is unknown. However, one thing is sure that banks need to strengthen the npa recovery process further to minimize the impact. 

Experts believe that the pandemic has the capacity of amplifying the financial vulnerability much higher than expected earlier. If major economic contraction happens, then corporate and household debt burdens may increase further. 

The impact is global and not limited to specific sectors. From the service sector to the retail loan sector, construction, retail, or gems and jewelry; everything will see a downfall. 

Increasing disputes will result in more cases getting registered with nclt lawyers Mumbai.

It is certain that npa financial services will have to work hard to keep the situation under control. The efforts will have to be from both sides. At one side, it is important that liquidity increases in the market. On the other side, efforts will be needed to encourage the borrowers to repay the loan without fail.

It is easier said than done because fiscal revenues will see a hit due to lockdown and other disruptions. Also, expenditures will be under strain. There will be a tendency to delay the expenses.
With other things, bank credits will also get weakened further in the second and third quarters despite unlocking phases one, two and further.

With the increased cases of NPA and NPA-related disputes, DRT lawyers will have to deal with more disputes. 

In short, the downfall will be far severer than estimated earlier. Several hidden impacts will come out subsequently. It is important that strong and effective steps are taken to tackle the problem.