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An investigation by The Indian Express found that just 100 companies owed more than 43% of all non-performing assets (NPAs), or Rs 4.02 lakh crore as of March 2019.  

What are Non-Performing Assets (NPAs)?

NPAs are loans or advances where the principal or interest payment has been due for more than the past 90 days. When customers fail to pay their interest or principal, the loan becomes an NPA, which means it no longer generates revenue for the bank. The Reserve Bank of India (RBI) defines NPAs as assets that no longer generate revenue for banks.

According to RBI guidelines, NPAs are divided into three categories:

Substandard assets are NPAs that have been overdue for up to 12 months.

Doubtful assets are NPAs that have remained in the substandard category for more than 12 months.

Loss assets are assets that are considered uncollectible and have little recovery value.

What is the scale of the NPA crisis in the Indian banking system?

The banking system is experiencing a significant NPA crisis, with gross NPAs reaching ₹9.33 lakh crore as of March 31, 2019. This was the second-largest bad loan amount recorded in the country's banking history. 

A recent investigation revealed that just 100 companies accounted for 43% of the total NPAs (₹4.02 lakh crore). Among these, 30 companies alone accounted for more than 30% of the gross NPAs.

Three sectors—manufacturing, energy, and construction—dominate the NPA crisis. These sectors account for over 50% of the total debt among the top 100 defaulters.

The NPA crisis has put a strain on India's banking system, reducing banks' ability to lend to other sectors. 

The recovery efforts from these bad loans are slow, and many businesses are declaring bankruptcy, with one-third of them in liquidation. 

This situation forces banks to raise interest rates while limiting their ability to fund other productive activities, potentially increasing unemployment rates.

What steps are being taken to address the NPA crisis?

Recovery efforts are ongoing, with many of the top defaulters facing bankruptcy proceedings. However, with a large number of cases stepping into liquidation, recovery potential remains limited. The crisis highlights the need for stronger regulatory measures and better lending practices to avoid similar situations in the future.

What steps should be taken to address the NPA crisis in India?

To avoid future crises, the government should prioritise increasing transparency, strengthening recovery procedures, and assisting banks in efficiently managing distressed assets. 

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NON-PERFORMING ASSETS 

Source: 

Indian Express