Finally the worst of NPA crisis is over says RBI report, banks recovering from drought!

4 years back, no one could have imagined if the Indian banking system would be able to recover due to the enormous mess incurred due to NPA. The Congress government which encouraged giving massive loans to all Businessmen without collateral security literally brought the state of the banks to complete standstill.

When Modi government came to power, the biggest challenge for him to rescue the banks from the mess and recover the mass NPA which some bussinessmen had gifted to the banks. The Modi government’s big push was the bankruptcy and insolvency act 2016 which literally changed the scenario. The companies who escaped from paying back loans literally were shattered with the move and agreed to pay back the loan amount to the banks. Nearly 83,000 crore was paid to the banks in a spam of 6 months.

The government even cleared Rs 2 lakh crore oil bonds which were pending since ages. This literally took out the country from the huge burden and helped banks recover the money lost.

Now, the Modi government won the case against Vijay Mallya which has made him beg for mercy. He has agreed to repay all loan amount and wants to be in good terms with the banks. Just after the Modi government won the case against Mallya, Mehul Choksi who had fled India has now come forward to settle the loan amount.

With such major developments, the RBI has reported that the banks have recovered from the worst phase and is on the verge of recovering. As reported by Livemint, In the baseline scenario, the gross non-performing asset (NPA) ratio may decline from 10.8% in September 2018 to 10.3% in March 2019 and 10.2% in September 2019, RBI said in its biannual Financial Stability Report (FSR). In his foreword to the report, new RBI governor Shaktikanta Das wrote that after a prolonged period of stress, the load of impaired assets was receding, with banks reporting their first half-yearly decline in the gross NPA ratio since September 2015. 

The asset quality of banks showed an improvement, with the gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) declining from 11.5% in March 2018 to 10.8% in September 2018. But an industry analysis by RBI shows that stress is rising in the mining, food processing and construction sectors.

the performance of public sector banks witnessed an overall improvement, with credit growth increasing from 5.9% in March 2018 to 9.1% in September 2018 and deposit growth increasing from 3.2% to 5% during the same period.

RBI said there had been a further widening between PCA and non-PCA PSBs: while non-PCA PSBs’ credit growth improved from 9.1% in March 2018 to 13.6% in September 2018 and deposit growth rose from 6.1% to 7.9% during the same period, the PSBs under PCA registered a decline in both credit and deposits.

“Solvency losses due to a simultaneous failure of 11 PCA banks have declined from ₹73,500 crore (6.8% of total tier-1 capital) to ₹34,200 crore (3.1% of total tier-1 capital) in the last four quarters and to this extent the PCA framework has been successful in reducing the systemic footprint of the PCA banks,” the Reserve Bank of India said.

So, now that banks are recovering, the overall development and the economy would also take a leap which was much required. The country only hopes the banks to improve further and transfer the benefits to the honest tax paying citizens of the country.

Power Punch


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