There has been a lot of noise in India about the NPA crisis.

The reports of March 2018 say that the public sector banks accounted for around 86 percent of the total NPA, whereas the private sector banks shared the remaining chunk.

The ratio of the gross NPA to advance was 15% in public sector banks. Indeed, it is a crisis. Since the last ten years, the increase in the NPA has been staggering.

The fundamental reason for NPA


When did the problem start, and what were the triggering elements for it?

Economic experts put the responsibility of it partly on the credit boom that happened during the year 2004 to 2009.

Since the economy was on a rising track, nobody thought even for a second to give credits to the industries. Investments were being made, and all sectors were flourishing.

However, things began to go wrong in the early days of 2007-2008 when there were global financial crisis and further slowdown in the year 2011-12.

When the rupee depreciated, companies had to borrow higher amounts in foreign currency. Tightened banking norms in 2014-15 marked a watershed.

Npa consultant” a team of Npa activist has stated the post affects of the Nclt law. He states that the MSME's are not able to gain the benefits of the drt mumbai and nclt mumbai.

The impact and the reasons


Public ownership of banks was not up to the mark. Incompetence and corruption are the two shortcomings that resulted in the poor appraisal of credit risk.

Incidentally, the Gross NPA/Gross Advance Ratio was almost similar across public and private sector banks. Thus, it was not the public sector banks the culprits.

The explanation lies elsewhere.

The iron and steel, mining, infrastructure, aviation, and textiles were the five sectors that have the maximum exposure.

For example, PSBs had higher exposure to the five most affected sectors — mining, iron and steel, textiles, infrastructure and aviation (30% advances and 53% of stressed advances).

Roughly, the 85 percent of advances accounted by PSBs were from these sectors. The financial crisis and land acquisition and environmental issues delayed the infrastructure projects.

Adverse court judgments paralyzed the telecom and mining sectors. The steel sector got the massive hit by the huge dumping from China.

Ways to avoid the problem in future


  • Banks should accept losses on loans without fearing of harassment by investigative agencies.

  • There has to be an alternative to the Loan Resolution Authority.

  • Management of concentration risk- it means the limit to exposure to a business group has been reduced to 40 percent of total capital to 25 percent of Tier 1 capital.

  • The limit for a single borrower will be 20 percent of Tier 1 capital and not 20% of total capital.