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Non-Performing Assets

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The Rising Concerns and Proposed Solutions

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Introduction
Today, the banks in India, particularly the Public Sector Banks (PSUs) are under severe stress with the
extreme rise in the levels of Non-performing Assets (NPAs).
By September 2018, the NPAs may surge to as high as 11.1%.

Considering only the PSUs, the NPA levels were expected to count to 14.2%
in March 2018.
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As a result, the Indian government has been trying to figure out several ways to
tackle this situation.

Recently, Recapitalisation of Banks was proposed as a solution to deal with


NPA crisis.

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The Growth In GNPA

GNPA (%)
14

12

10

0
Q4 FY'15 Q1 FY'16 Q2 FY'16 Q3 FY'16 Q4 FY'16 Q1 FY'17 Q2 FY'17 Q3 FY'17 Q4 FY'17

Source: MONEYLIFE

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Recapitalisation of PSUs
In order to recapitalise PSUs, the government of India has announced a relief fund of ₹2.11 lakh
crore recently.
This will enable banks to:

Improve their credit portfolio.


Focus on asset quality and NPA recovery.
Prevent any more decrease in Economic Value.

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The Challenges
The backbone of recapitalisation of banks is the Insolvency and Bankruptcy Code (IBC).
However, IBC hasn’t been able to deliver productive results yet.
Under IBC, when assets of NPA accounts are auctioned, the defaulters may retain their
assets/company at a much-reduced cost.
The NPAs have a provision to bid for their own assets in auctions.

Thus, banks incur huge losses and they lack adequate capital.

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What Next?
Ever since mid-1980’s, recapitalisation of PSUs has been done for the fourth time recently considering NPA level
ranging from 15-20%.
Therefore, it cannot be considered to be a permanent solution and similar situations may rise again in future.

So, what more can be done to tackle NPAs? Read further…

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Measures to control NPAs
The names of defaulters must be listed in publications and wilful defaulters must be treated as per the laws of criminal
offence.
With no privatisation and government holding 51% stakes in PSUs, even plans like Indradhanush are less likely to
succeed.
Stronger governance and regulatory frameworks policies must be put in place.

NPAs must be dealt with sector-wise.

Senior management must be monitored closely for non-performance and must be made more accountable for lending
loans.

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