Comparison of NPA’s in Priority and Non-Priority Sector

The economy of India is divided into 2sectors which are the Priority and the Non-Priority
sectors. The priority sector of India has been further divided in detail under 3 major heads –
 Agriculture
 SSI ‘s
 Other Priority Sectors

While all those sectors like Industry and Services which don ‘t fall under priority sector
forms the non-priority. Agriculture, probably the biggest out of all the sectors, is the
undertaking of over 60% of the Indian populace, with its contribution to the GDP being
over 15%. With the agrarian sector being such an important part of the Indian Economy,
the government and banks are continually working for the development of this sector, but
certain inherent challenges and risks such as high number of Non-Performing Assets
(NPAs) are posing problems. As India is still a growing economy, the same is reflected in
the Non-priority, mainly the Industrial sector of India. Although a large amount of funds
is directed towards the growth and stabilization of the industrial sector to cope up with the
globalized and industrialized world, these funds same as with the priority sector poses a
large risk of destabilizing the economy with NPAs.
Both the Priority and the Non-Priority sector are important sectors of any economy. India
being a developing economy, this is even more so. Also, the loans advanced to these
sectors play a large part in their growth and the stability of the economy. But, in India, the
loans advanced to these sectors not only helps them grow, but also gives rise to a
completely unwanted situation, viz. an alarming rise in NPAs of the banks, due to many
of these companies failing to pay back these loans. As of 2013, advances given to the
non-priority sector is 2.19 times more than that which was given to the priority sector,
which shows the clear prejudice of the SCB ‘s against the priority sector. But, in 2017,
the advances to the non-priority sector have come down to 1.72 times that of what was
given to the priority sector. This margin, although small, shows the growth in economy
by reducing the imbalance from 2.19 times to 1.72 times.
Meanwhile, the NPAs incurred by these banks from both the priority and the non-priority
sector has also shown a drastic increase in the 5 years.
1. The NPAs by the priority sector has increased by as much as 18.23% from 2013 to
‘14. While the trend remains mostly constant (from 18.23 to 18.35%) through
2014 to ‘15, it again increased by 37% in 2015 to ‘16. While the rate of increase
became low, the NPAs still increased by 21% from 2016 to ‘17.
2. The NPAs by the non-priority sector has shown an even greater increase than that
of its counterpart, with a 48.58% increase from 2013 to ‘14. The increase rate
decreased from 2014 to ‘15 and only increased by 25.4%. But, the period from
2015 to ‘16 saw a staggering increase in NPAs, as much as 113%. The increase in
NPAs only continued from 2016 to ‘17 by 32.78%.
3. Just like the advances towards the sectors, the NPAs have also overall increased
during the 5 years. But, the sheer rate of increase speaks volumes about the crisis
 it can bring to the SCB ‘s involved. While the total rate of increase of NPAs in the
priority sector is 132.41%, the increase in the non-priority sector is a stupefying
527.29%. The nature of increase of NPAs in both sectors is irregular, but has
shown a drastic increase.

So, what are the reasons for Increase in NPAs in the Priority Sector?
1. Intentional Defaulters –
A large chunk of NPAs come from borrowers who have the monetary resources to
pay back loans, but do not do so due to their various personal reasons. ― “I have
decided not to repay my loan instalment this time. Who knows there could be a
similar waiver again in lieu of elections in the state next year?” were the words
spoken by a farmer.

2. Natural Calamities –
India, due to its vast geographical differences, is very susceptible to various forms of
natural calamities. Every now and then, when India is hit by these disasters, a
majority of the farmers becomes unable to pay back their borrowed loans, due to the
hit on their already limited financial resources. Thus, it falls on the banks themselves
to deal with this large amount of unpaid loans, which leads to a large increase in
NPAs all at once.

3. Lack of proper resources in Agriculture –

Lack of Infrastructure, Lack of proper technology & improper supply of inputs are
major factors. All these factors coupled together showcase the underdeveloped
agrarian sector of India, along with leaving farmers in crippling debt due to lack of a
proper fixed income. This forcibly pushes them inside a vicious circle of a debt trap,
which drastically increases the NPAs on advances pertaining to the agrarian sector.

Although there are more reasons to why NPA’s happen, but one thing is for sure that
these problems must be eradicated as soon as possible.