There has been a lot of debate and discussion happened about npa in india.The standing committee of financehas raised serious concerns about the capacity of Indian banks to lend due to increasing NPA percentage. There has been another committee appointed to evaluate the performance of public sector banks about NPA and loan recovery.
RBI has also released guidelines for the timely resolution of the stressed assets. Regarding this context, the blog examines some underlying issues about the NPA and npa management.
What is the status of NPA issue in India?
Banks give advances and loans to the borrowers. A loan can be termed as a standard asset that is a loan where the borrower is making regular payments, and an NPA or Non-Performing Asset where the borrower stops paying the installments. A loan is considered NPA when the interest of principal repayment becomes overdue for 90 days or more.
In the last few years, there has been a phenomenal increase in the gross NPA from 2.3 percent to 9.3 percent. It means a large proportion of the bank’s asset is not generating any income. It means the profitability gets lowered and its ability to gain further credit diminishes.
Increasing NPA means a bank has to make larger provisions for loss. The bank has to keep aside extra money for paying anticipated future loss and npa account settlement.
The parameter of the bank’s profitability is its ROA or Return on Investment. ROA is the ratio of the net profit of the bank to its net assets.
What is being done to address the problem of rising NPA?
Two types of measures are taken to address the problem of NPA. First, imposing regulatory means to resolve NPA per various laws, e.g., bankruptcy code and insolvency. Secondly, banks need to prescribe remedial measures regulated by the RBI for managing the NPA process in India.
In 2016 May, the IBC (Insolvency and Bankruptcy Code) was enforced to provide a time-bound 180-day npa recovery process. If a timely decision is not taken, then the procedure is adjudicated by nclt court.