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December
Non Performing AssetsRBI has released a report called Report on Trend and Banking in India 2021-22. What does this report say?
The Gross NPA had peaked at 9% in 2017-18. But, it declined to 5% in 2021-22.
What is the primary function of a bank?
The primary function of a bank is to accept deposits and lend them.
What are the primary assets of banks?
The primary assets of banks are loans.
When does a non-agricultural loan become an NPA?
When the principal or interest of a loan remains unpaid over a period of ninety days then it becomes an NPA.
When does an agricultural loan become an NPA?
For short duration crops:
When the loan remains unpaid for two crop seasons.
For long duration crops:
When the loan remains unpaid for one crop season.
What are the primary assets of a bank?
Loans are primary assets of a bank.
What are the two types of assets of a bank?
There are two types of assets of a bank:
1. Standard asset- It does not carry more than the normal risk.
2. NPA: It does not generate any income.
What are the three categories of NPA?
There are three categories of NPA:
1. Substandard assets
They remain NPA for less than or equal to 12 months.
2. Doubtful assets
They remain NPA for more than 12 months.
3. Loss assets
They have been identified as losses by the cooperation dept of the RBI or by the bank or by the internal or external auditors. But, this amount has not been written off wholly or partially.
Why did the banks reach 9% NPA in 2016?
Banks reached 9% NPA in 2016 because of the following reasons:
- Poor governance and poor operational efficiency
- Stressed or stalled assets
- Cancellation of coal blocks leading to closure of projects leading to closure of projects
- Reduced purchasing capacity of discoms
- Inability of promoters to raise higher loans for projects
- Inability of banks to restructure projects
Why has the NPA of Indian banking sector seen a fall in the recent years?
NPA of the Indian banking sector has seen a fall because:
- Improved asset quality:
- Banks have written off bad loans worth Rs 10 lakh crore
- Banks have recovered an aggregate amount of bad loans worth Rs 6.5 lakh crore
- Enhanced profitability because of more income and less expenditure:
- Credit of banks has become the highest in 10 years while the expenditure as interests has fallen
- Lower slippage :
- Better credit monitoring
- More diversified portfolio of banks
- Greater capital buffers (Money that a financial institution has to keep in its stock besides the mandatory reserve capital)
- Greater provisioning( setting aside money from profits to cover future expenditures)
- Declining gross NPA
- Soundness of other indicators
- Sufficient liquidity
- Less number of banks under the PCA framework of RBI
What are the various initiatives to address NPAs?
- Capital infusion by govt into PSBs to help them achieve capital adequacy.
- Indradhanush plan to revamp the banking sector
- Consolidation through the merger of PSBs
- Setting up National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Limited (IDRCL).
- Insolvancy and Bankruptcy Code (IBC) 2016 for insolvency resolution of corporate loans in financial stress.
- Operational creditors (the one who owes money) is empowered. They too can make applications for Corporate Insolvancy Resolution Process (CIRP). Insolvancy takes place when a company can no longer give money to its creditors.
- The IBC has been amended to include Pre Packaged Insolvancy Resolution Package. It means there are efforts made by restructuring the MSMEs to save them from complete failure. It has empowered the MSMEs.
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