NPAs: Cleaner of banks or killer of Indian economy?

The problem of Non-Performing Assets or NPA not just eats away the “good money” but
also impacts the bank many times.

Why is this phenomenon has put the whole banking world in a state of jeopardy? Why has it
been termed as the killer of the economy?

When a loan or advance ceases to generate income for the bank and where the interest and /or
installment of the principal amount remain overdue for more than 90 days, it is termed as NPA or
Non-Performing Asset.

Identification of NPA and initialization of npa account settlement is considered the steps
towards cleaning of balance sheets.

The overall impact of NPA is adverse

A bank has many borrowers including corporates, micro, small, medium, and large industries,
traders, and exporters. All these generate wealth and increase the GDP of the country. Not just
that, they provide employment to more than 200 million people in the country.

Hence, GDP growth and per capita income are dependent on that.

When banks fail to secure the lending by tangible and intangible securities and guarantees, the
problem of NPA arises.  Unsettled and disputed cases are referred to national company law
appellate tribunal, where they are handled by experts.

Ever since the inception of present NPA norms, it has put ill effects and cast a shadow on all
stakeholders, i.e., Banks, exporters, companies, and MSMEs.

Banks are the worst sufferers because the big chunk of their lending portfolio had been classified
as NPA. It forces them to make provisions for loss, that results in the erosion of net worth and
capital.
The governments have to shed huge funds to recapitalize the banks.

The burden comes on the public

The burden of NPA comes to the public. Thus, everybody is a sufferer, the bank, the business,
and the public. Not just that, the economic condition and the country also suffer. Due to the fear
of NPA, and the hassles of npa account settlement, banks become conservative in lending to
new projects.

Banks cannot predict future cash flows, which is a vital element for servicing debt installments
and interest liabilities.

The fear of NPA kills the new idea with a high potential for growth. They become less
entrepreneurial so that the risk is avoided.

Bankers can ensure proper due diligence of loan proposals and they can adhere to lending
norms, but it is impossible to monitor the business operation of their lenders. Therefore, cases
referred to national company law appellate tribunal are eroding their business and viability.

Published by : npaconsultant.in

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