Illustration by Binay Sinha
In the March 2018 quarter, the gross non-performing assets (NPAs) of Indian banks surged past Rs 10 trillion. This surprised many observers, if not the bankers, as the true extent of bad debt was not evident before the Reserve Bank of India (RBI) arm-twisted lenders to disclose whatever was hidden under the carpet. There are many economic reasons for this NPA pile-up, but the numbers ballooned after the central bank’s February 12 circular. The circular said if a loan is not serviced for 90 days, it is in default and recovery proceedings can be started against it.
Not surprisingly, the gross NPA of all listed banks jumped to Rs 10.25 trillion in the March quarter, from Rs 8.86 trillion in the December 2017 quarter.
The March level was roughly 11.5 per cent of the total loan book. Adding restructured, and loans suspected to be falling into NPA, the share could be 13-14 per cent of the loan book.
RBI’s financial stability report says the gross NPA ratios of the banking system could reach 12.2 per cent of the loan book by March 2019. The good news
is that the gross NPAs showed a downward trend in June and then in September quarter . This is largely because of the strict Insolvency and Bankruptcy Code, or the fear of it. Bankers now believe the recognition part of NPA is over, and the recovery needs to begin.