Page 33 - Banking Finance June 2023

ARTICLE

Reasons for High NPA in India:
Stalled Judiciary & Legislative Procedures: The courts in
India gave judgements that were not in favour of
businesses. The judgements negatively affected businesses,
specifically the mining, power and steel divisions.
Furthermore, the businesses had to face problems
regarding the acquisition of land because of which many
projects got stalled due to which the repayments have been
not done by many current NPA defaulters.

Intentional Defaults: It is also observed that many
borrowers are totally competent to pay the loan, but
they are deliberately not paying. Such people must be
identified, and appropriate measures should be taken
to recover the money lent to them. Relaxed lending norms: Another major reason for rising
Poor Credit Appraisal System: The lack of proper credit NPA was the relaxed lending norms for corporate
houses.Their financial status and credit rating were not
appraisal is another factor for the rise in NPAs. Because
analysed properly.
of poor credit appraisal, sometimes the bank gives loans
to those who cannot pay back the loan. The priority sector lending (PSL) sector: Targeted
lending has contributed substantially to the NPAs.
Natural Calamities: Natural calamities are also a factor
Priority sectors include agriculture, education, housing,
creating an alarming rise in NPAs in public sector banks.
MSMEs & agriculture.
India is hit by one or the other major natural calamity
very often that causes failure of repayment of loans by Diversion of fund by promoters: There are also cases
the borrowers. Generally, the farmers are dependent of credit default by promoters, where the funds have
on rainfall for their crops. However, the irregularity in been diverted by over-invoicing imports, sourced via a
rainfall reduces the production level of the farmer, and promoter owned subsidiary abroad or exporting to shell
as a result, he is unable to repay the loan. companies and then declaring that they defaulted.
Credit cycle effects: At the time of the credit boom in
Government Inventiveness to tackle
the year 2003-2004, it was seen that the problem of
rising NPA was increasing rapidly. During this period, the NPA:
world economy and the Indian economy were
The problem of NPAs has been going on for a long time in
flourishing. Seeing this scenario, many Indian firms
India, and the government of India is taking various steps
borrowed huge amounts to take advantage of the
at legal, financial, and policy levels. Some of them are:
opportunities and grow their businesses on wrong
LokAdalats - 2001
assumptions.
They are helpful in tackling and recovery of small loans
Financial crisis: Before the financial crisis of 2008 India's however they are limited up to 5 lakh rupees loans only
economy was in a boom phase. During this period banks by the RBI guidelines issued in 2001. They are positive
lent extensively to corporates in the expectation that in the sense that they avoid more cases into the legal
the good times will continue in future. But the system.
assumptions were proven wrong. Compromise Settlement - 2001

Earning of the corporates: Low earnings affected their It provides a simple mechanism for recovery of NPA for
ability to pay back loans. This is one of the most the advances below Rs. 10 Crores. It covers lawsuits
with courts and DRTs (Debt Recovery Tribunals) however
important reasons behind the increase in NPA of public
wilful default and fraud cases are excluded.
sector banks.
30 | 2023 | JUNE | BANKING FINANCE