Page 31 - Banking Finance January 2018

ARTICLE

that these amendments, along with the years, the Indian banking sector suffered tremendous asset quality stress in its loan
bankruptcy code, will provide a time- portfolio as a number of large projects ran into difficulties mainly on account of
bound framework to deal with dis- poor project evaluation, extensive project delays, poor monitoring and cost over-
tressed assets and loan recovery. runs creating pressure on borrowers to repay loans. Public sector banks, severely
impacted by high levels of bad loans, witnessed a slowdown in credit growth.
Distressed Assets and Effi-
The evolution of the recovery mechanism put in place in India can be summa-
cacy of Recovery Mecha- rized as below:
nism - An overview
2006: Private 2008-2009: Five 2010-2016: Continuous
The problem of stressed assets in the players Alchemist, new ARCs formed; amendments brought by the
Indian banking sector has significantly Pegasus and total of 14 ARCs in RBI in the existing
worsened in the recent years. Conse- International ARC existence by 2009 framework for handling
quently, the risk landscape for the start operations NPAs by banks and ARCs
banks in India has undergone a major
change.The restructuring and recapital-
ization process associated with the
post-1991 'reforms' had resulted in a
sharp decline in the ratio of gross NPAs
to gross advances from 15.7 % at the
end of 1996-97 to 2.3 % at the end of
2008-09, the year of the global finan-
cial crisis and at 2.36 % in 2010-11.

However, since then there has been a
reversal in trend, with the ratio rising
to 3.4 % in 2012-13, 4.6 % 2014-15 .
After the introduction of RBI's asset
quality review (AQR) mechanism , the
position has been further deteriorated
to 7.6 % in March 2016 from 5.1 %
in September 2015. The total banking
credit outstanding as on 30 September
2015 was Rs 67.38 trillion, of which the
stressed assets (Gross Non- Performing
Asset (GNPA) + Restructured Advances If we look a little far back, the asset quality of the Indian banking system was
(RA) size was Rs 7.6 trillion (11.3% of not like at this position, it had actually been improving significantly since the
total). The growth in NPAs was much implementation of reforms in the banking sector and introduction of prudential
norms, enactment of the Securitization and Reconstruction of Financial Assets
higher than the growth in advances
and Enforcement of Security Interest Act 2002, Credit Information Companies
during the last four years.
Act, etc. Banks have resorted to recovery under several methods over the years
A simultaneous sharp reduction in re- including LokAdalat, Debt Recovery Tribunals (DRTs) and the SARFAESI Act.
structured standard advances ratio from However, during the last few years, due to burgeoning of bad loans, the exist-
6.2 per cent to 3.9 per cent during the ing recovery mechanism could not show much progress in recovering the bad
same period resulted in the overall loans due to various impediments in the system . The World Bank data as of
stressed advances (i.e., NPAs plus Re- June 2015 indicates that India lags behind most of the emerging market econo-
structured Assets ) ratio rising margin- mies in the time taken to resolve cases of insolvency. The cases referred and
ally to 11.5 per cent from 11.3 per cent amount recovered during last few years through LokAdalat, DRT and SARFAESI
during the period. During the past few is given hereunder (Table -1 ).

BANKING FINANCE | JANUARY | 2018 | 31

Sashi Publications Pvt Ltd Call 8443808873/ 8232083010