Page 34 - Banking Finance June 2019

ARTICLE

demand and started production which ultimately piled Governance factor:
up their product thus making them unable to pay back There is no denying that the NPA is also an issue of
the money they borrowed to operate these activities. governance, linked to appointments, pressures
The banks recovered the amount by selling of their from "above" coupled with wild bureaucratic
assets, which covered just in a small. Therefore, the mismanagement and poor oversight. Anecdotal
bank recorded the non-recovered part as NPAs and had stories abound on how loans are fixed.
to make provision for it.
Overseas/Global reasons:
GDP slowdown Competition from the global market:
Between early 2000's and 2008, Indian economy was Many countries are exporting and dumping
in the boom phase. During this period banks, especially material/goods in really very competitive price that
is hampering the home country business in various
public sector banks, lent extensively to corporate.
way the home industries are taking their last
However, the profits of most of the corporate dwindled
breath or suffering as facing no demand due to
due to slowdown in the global economy.
higher competition and also importing from other
Government
country material with lower cost.
Frequent change in government policies: With
Failures, non-payment/over dues in other countries
every new government banking sector gets new
policies for its operation, with various input from Recession in other countries
the side of government with the changing principles
Adverse exchange rates
and policies created hurdles for the regulation of
Fall in price of home currencies
the rising of NPAs.
For example, ban on plastic bags affected the Lack and fluctuation in Global demand
plastic bag industry and loans in such industries Import ban by certain countries for specific
went bad. countries.

Ban on mining of coal and impact was on Wars/riots and prolonged public disturbances:
various industries like power, construction and
These cannot be avoided, and assets becoming NPA
road.
because of such circumstances need to be dealt with
Delay in environmental related permits by the concerned government and banks with
affecting power, iron and steel sector compassion.
Taxation and other laws: Demonetization, GST, Natural calamity:
excise duty changes, Import duty changes etc. Floods, drought, cyclone, earthquake and other natural
disasters.
Announcement of Debt waiver scheme: The
government of India had given a massive waiver that Changes related to Banking amendment Act
left a negative impression on the payer of the loan. Changes in consumer preferences:
Unhelpful attitude of Government Change in the lifestyle of consumers effects the industry
whose products go out of fashion.
Political interference: Political pressure/other
considerations for sanctioning of loans Fast changing technology:
That is making the product and services obsolete present
Political hostility
in the market resulted in business failure.
Restructuring of loan:
Lack of Infrastructure
This facility was extended to those companies which
were facing larger problems of over-leverage and
Concluding Remarks
inadequate profitability. Work done in this process
Now we know that specific below the water line hitting
mostly was only with a intentions just to postpone
point of this giant iceberg of NPA. Working on only one point
the situation.

34 | 2019 | JUNE | BANKING FINANCE