Review of NPA in India

Review of NPA in India

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An NPA or, a non-performing asset alludes to an advance or loan for which the principle or interest payment has been late for a predetermined length of time.

How critical is the issue?

• Loans totaling more than Rs. 7 lakh crore are categorised as non-performing in India. This is a massive sum.

• This equates to around 10% of all Loans made.

• This implies that around 10% of loans are never repaid, resulting in significant financial losses for institutions.

• When restructured and unrecognised assets are included, overall stress is estimated to be 15-20% of total Loans.

What are the causes of NPA?

• Economic Slowdown: With economic growth slowing and interest rates rising substantially, corporations have found it harder to repay loans, resulting in increased NPAs.

• Wait and see approach: Banks allow declining asset classes to deteriorate further in the hope of a recovery and frequently give restructuring alternatives to corporations.

• Fear of the three Cs: courts, CBI, and CAG

• The ineffective credit evaluation procedure

Operational factors: Ordinary individuals frequently complain about the difficulties of obtaining Loans, whilst certain major borrowers receive Loans on a silver platter.

The project was not finished on time.

Business failure

Deliberate defaulters

• Natural disasters

• Funds diversion

The genesis of India’s NPA crisis goes far farther back in time, in judgements made in the mid-2000s, rather than recent developments. During that time, economies around the world were booming, with India's GDP growing at a rate of 9-10% per year. For the very first time in the history of the country, everything was going well: company profitability was amongst the greatest in the world, pushing enterprises to aggressively employ personnel, which drove salaries rising. Firms planned appropriately. They announced new projects totaling lakhs of crores, mainly in infrastructure-related sectors like as power production, steel, and telecoms, triggering the country's largest investment boom in history.

This investment was made possible by an incredible credit boom, the greatest in the country's history. However, just as businesses began to take on more risk, things began to go wrong. The enterprises' costs escalated significantly over their estimated levels, as obtaining land and environmental clearances proved far more difficult and time-consuming than anticipated (many project approvals and land acquisitions were stalled during the last three years of the UPA-II). Simultaneously, the firm's forecast revenues collapsed following the Global Financial Crisis; projects that had been built on the assumption that growth would continue in the double digits were abruptly presented with growth rates half way that level. As if these issues weren't enough, borrowing expenses skyrocketed. When the RBI raised interest rates to grapple with double-digit level of inflation, companies that borrowed domestically suffered.