www.iasinsights.in ; www.iasgyaan.com posts Hindu summary-28th June 2018 about Reality on NPA’s.
Reality check: On bank NPA’s
- Reserve Bank of India has warned that the gross non-performing assets (GNPA’s) of scheduled commercial banks in the country could rise from 11.6% in March 2018 to 12.2% in March 2019.
- Report highlights Public sector banks (PSB’s) are far more prone to fraud than their private sector counterparts. This is significant in light of the huge scam unearthed at a Punjab National Bank branch earlier this year.
- The deteriorating health of banks is in contrast to the economy, which is on the path to recovery, clocking a healthy growth rate of 7.7% during the last quarter.
- RBI believes that this will increase the size of provisioning for losses and affect the capital position of banks.
- The capital to risk-weighted assets ratio of the banking system as a whole is expected to drop from 13.5% in March 2018 to 12.8% in March 2019.
- Rising external risks that pose a significant threat to the economy and to the banks
- Tightening of monetary policy by the United States Federal Reserve and increased borrowing by the U.S. government have already caused credit to flow out of emerging markets such as India.
- The increase in commodity prices is another risk on the horizon that could pose a significant threat to the rupee and the country’s fiscal and current account deficits.
- Serious corporate governance issues faced by public sector banks, which to a large extent also contributed to the lax lending practices that are at the core of the NPA crisis.
What need to be done?
- Governance reforms at PSB’s can help improve their financial performance and also reduce their operational risks.
- RBI expects the government’s recapitalization plan for banks and the implementation of the Insolvency and Bankruptcy Code to improve the capital position of banks.
Unless the government can gather the courage to make drastic changes to aspects of operational autonomy and the ownership of PSB’s, future crises will be hard to prevent.