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Banks gross npa drop

UPSC CURRENT AFFAIRS | BANKS’ GROSS NPA DROP BELOW 6% IN MARCH 2022, LOWEST IN SIX YEARS | 20TH JUNE | BUSINESS STANDARDS

/ June, 2022, UPSC Daily Current Affairs

SYLLABUS SECTION: GS III (ECONOMY)

WHY IN THE NEWS?

According to the recent reports, gross non-performing assets (NPAs) of the sector Banks gross npa drop below 6 per cent as of March 2022 (the lowest since 2016) and net NPAs fell to 1.7 per cent during the same period.

  1. It indicates that the sector has remained largely unscathed from the ill effects of the Covid-19 pandemic so far.
  2. Net NPAs subtract the provisions made by the banks from the gross NPA.

MORE DETAILS:

  • The asset quality of Indian banks started deteriorating in the early part of the last decade and peaked in March 2018 with gross NPA hitting 11.5 percent of gross advances. Since then, the asset quality of banks has been improving in Banks gross npa drop.
  • Gross NPAs of scheduled commercial banks were at 7.3 percent in March 2021 and 6.9 percent in September 2021.
  • It is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
  • NPAs are of the following three categories:
  1. Substandard Assets (remained NPA for a period less than or equal to 12 months).
  2. Doubtful Assets (remained in the substandard category for a period of 12 months).
  3. Loss of assets (considered uncollectible).
  • Steps were taken to address NPAs:

IBC (Insolvency and Bankruptcy Code):

  • The bankruptcy code is a one-stop solution for resolving insolvencies, which previously was a long process that did not offer an economically viable arrangement.
  • The code aims to protect the interests of small investors and make the process of doing business less cumbersome. The IBC has 255 sections and 11 Schedules
  • IBC was intend to tackle the bad loan problems that were affecting the banking system.
  • The IBC process has changed the debtor-creditor relationship.

 

SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act:
  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, more commonly known by its shorter name SARFAESI Act, is legislation that allows banks and other financial organizations to recover bad loans effectively.
  • The act can be utilized to tackle the problem of Non-Performing Assets (NPAs) through different procedures. However, this is possible only for secured loans. For unsecured loans, banks should move the court to file a civil case of default.
  • This act makes the court’s intervention unnecessary in the case of secured loans. The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
RDDBFI (Recovery of Debts due to Banks and Financial Institutions) Act
  • Fugitive Economic Offenders Act, 2018 to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. Other steps include- Corporate Debt Restructuring, Special Mention Accounts for additional precaution at the operating level, etc.

Read more: UPSC CURRENT AFFAIRS

SOURCE: BUSINESS STANDARD