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NPA blues and corrective measures
Since 2016, the Insolvency and Bankruptcy Code, 2016 (IBC) has not given substantial results. Under this act, cases are crossing the prescribed time limit of 270 days. A few cases have even not been executed in 500 days. The case of Essar Steel is vivid example in this regard.

In the prevailing circumstances, the Public Sector Banks (PSUs) want to sell their Non Performing Asset (NPA) accounts. For increase the percentage of recovery, the PSUs also want to include the cases, which are even running in the National Company Law Tribunal (NCLT).

United Bank of India has planned to sell the NPA account of Rs 3,000 crore. IDBI Bank has decided to sell NPA account of Rs 29,000 crore, which is of Alok Industry. The NPA account of Rs 3,900 crore is of Jaiswal Nico. Dena Bank, Bank of India and Punjab National Bank also want to sell their NPA accounts. State Bank of India is going to sell its NPA accounts of Rs 15,431 crore which is given to Essar Steel. The bank has kept its reserve price Rs 9,587.64 crore. The Central Bank of India is also exploring the possibility of settling NPAs of several other accounts, including Essar Steel. The NPA account of Rs 48,000 crore of Essar Steel, Rs 29,000 crore of Alok Industry, Rs 6,900 crore of ABG Shipyard, Rs 3,900 crore of Jaiswal Nico, Rs 3,600 crore  of Visa Steel, Rs 2,700 crore of Dighi Port and Rs 2,300 crore of Moser Baer are related to PSUs. By disposing these NPA accounts, PSUs can increase their profits.

Nonetheless, the government is also worried about the resolution of mounting NPAs. The government has announced a package of Rs 2.11 lakh crore for PSUs. In the total amount, Rs 18,000 crore will be given from the budget, Rs 58,000 crore will be raised as equity from the market and Rs 1.35 lakh crore will be made available by the government as recapitalization bonds. This process will be completed in two years. It is believed that weaker banks from the recapitalization package will be able to comply with the regulatory requirements.

However, the relief given by the government cannot be considered adequate, as the NPA of banks increased to Rs 10 lakh crore by March 31, 2018, whereas at the end of March 2014, the same was only Rs 2 lakh crore.  In the year 2014, the total NPA against total advance was 4.4 per cent, which increased to 11.06 per cent in 2018. Right now, 11 government banks are in the list of the Central Bank's Prompt Corrective Action (PCA), due to which these banks are unable to sanction the loans, resulting in less credit availability for micro, small and medium enterprises (MSMEs).

A report published by Central Bank in 2018 says that NPA of Indian banks in 2018 was 12.1 per cent of total advance. In the financial year 2018 only, it increased by 3.13 lakh crore. In March 31, 2018, NPA of PSUs was Rs.8.97 lakh crore, in which the share of State Bank of India was Rs.2.23 lakh crore.

Punjab National Bank was second in the case with NPA of Rs 86,620 crore, while Axis Bank's NPA was Rs 34,249 crore, while ICICI Bank's NPA was Rs 54,063 crore.

It seems that due to stringent rules made by the Central Bank, level of NPA has increased tremendously. According to RBI regulations, banks should implement uniform rules for NPA. If an account is classified as NPA, other accounts of person or entity will also be treated as NPA. Similarly, in consortium, a NPA account in one bank is also treated NPA in other Banks. However, these rules having already with PSUs, but central Bank are now strict in this regard. To strengthen the system of banks, the size of the group of lenders is also proposed to be reduced. Currently, 20 to 22 financial institutions are included in the group of lenders or consortium, which are proposed to be reduced to 7 to 8, so that the accounts of the debtor can be closely monitored.

Bank employee is completely helpless in NPA recovery. Banks make certificate cases against the defaulters. The banks also get issued warrant from court against the defaulter for attachment of moveable or immoveable asset, which is usually not issued without lobbying or bribe. It is not easy for the bank's officials to do attach or confiscate movable or immovable property without the help of other agencies, as the bank is largely dependent on other agencies or departments for recovery. If in some way the bank officers get issued a warrant for attachment, then police don't help in executing it. The Corporate is expected to form the basis for economic reforms, but nowadays most of them are deliberately not returning the loans of banks. In this connection, Lack of human resources, corruption and casual approach towards debt recovery can  be considered as main reason of slow recovery.

Although, the current situation of the NPA is frightening, it cannot be said that the problem of NPA is an incurable problem. There are risks in every business in the world. The banking business is not even different from this. In the current financial year, the way in which some PSUs have succeeded in reducing their NPA, by adopting the strategy, some more PSUs can reduce it.

Some important measures such as bring awareness among bank's employees, arranging staff training, avoiding to put unnecessary pressure on bank's officials in sectioning loans & selling off insurance products, complying with the instructions of circulars, sharing the database with other banks & agencies,  avoiding political interventions etc. can definitely give positive result in the case. In the second quarter of this financial year, State Bank of India & some other PSUs has achieved a little bit success in reducing their NPA level. Now, the PSUs    are planning to reduce their NPA level by auction of NPA accounts. If such efforts do sincerely, positive result in this regard can be seen soon.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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