The unabated rise in Non-Performing Assets (NPAs) of the Indian banking sector is a cause for concern for the economy. Due to this reason, the Economic Survey devoted considerable attention to what it terms India’s Twin Balance Sheet problem – overleveraged and distressed companies and the rising NPAs in Public Sector Bank balance sheets. The issue is important because it is holding up private investment in the country and therefore, growth across different sectors. Some of the major reasons for the increase in NPAs of banks are the subdued domestic demand conditions and no signs of a turnaround in private investment along with continuing uncertainty in the global markets
leading to lower exports of various products like textiles, engineering goods, leather, gems, etc. Moreover, the Public Sector Banks (PSBs) continue to be under stress on account of aggressive lending in the past. To be sure, the bad loan crisis at Indian state-owned banks continues to worsen, with banks posting a 56.4 per cent rise in gross non-performing assets or NPAs in 2016 as per a report by The Indian Express (dated 20th February, 2017 citing figures compiled by Care Ratings).
The recent ordinance to amend the Banking Regulation Act will give the RBI more power to resolve the problem of NPAs in the Indian banking sector, which has become a major cause of worry for the policymakers. The RBI will now be in a position to advise banks on the resolution of bad assets including initiation of insolvency proceedings. This is a much-needed step that will help re- vive stranded assets and resume credit flow to industry.