RBI measures on Non-Performing Assets (NPA) | SBI PO Prelims & Mains Preparation - Bank Exams PDF Download

Introduction

What is NPA?

• A credit amount for which both the principal amount and the interest due on the amount is not paid for a specific period of time (generally 90 days) is termed as NPA 
• NPA are also termed as bad loans or defaults 
• NPA arise as a result of bad lending practices, banking crisis, frauds in banking operations etc. 
• Public sector banks are highly stressed due to NPA 
• NPA causes severe liquidity problems in banks and to the shareholders of the banks

NPA facts for current fiscal

• RBI has reported gross NPA has increased to 11.1 percent from 9.2 percent in the previous year 
• RBI reports a staggering gross NPA figure of 3 lac crore 
• Stressed assets of banks stood at more than 6 lac crore 
• RBI has revealed that 5 out of 8 PSU banks have recorded huge losses due to NPA 
• The highly stressed public sector banks include: 
  • Punjab National Bank 
  • Indian Overseas bank 
  • Syndicate bank 
  • Bank of Baroda 
  • Dena Bank 
  • Allahabad bank 
  • Central bank of India

Ill effects of NPA

• Borrowers find it difficult to borrow from banks as bankers show aversion to borrowers 
• The attitude of bankers towards the borrowers becomes arrogant 
• Borrower gets demoralized with such behavior of the employees and loses faith in the banking system. 
• Bank loyal customers move away from their banks 
• The reputation of the bankers is at stake in such high NPA situation 
• The relation between bankers and borrowers is not conducive 
• Banks start to adjust daily operations and accounts as a result of NPA 
• Shareholders lose confidence in the banks and withdraw their invested money from the banks as a result of NPA 
• Customer service of Banks becomes negative and employees start shouting at customers over the phone 
• Banks start moving towards bankruptcy

Gross NPA figures of banks

• Punjab National Bank reported the maximum gross NPA and ranks top among public sector banks 
• Punjab National Bank reported gross NPA of 34338 crore, an increase of 10000 crore from previous year 
• Central Bank of India has reported gross NPA of 17564 crore 
• Dena Bank has reported gross NPA of 7916.47 crore 
• Allahabad Bank has reported gross NPA of 3494 crore 
• ICICI banks is facing huge problems due to NPA and faces the heat in the private sector 
• ICICI bank has reported gross NPA of 21149 crore, a steep rise of 70 percent compared to previous years

RBI Measures

• Asset restructuring 
• Divestment through sell off of stressed assets. Reformed Bankruptcy norms 
• RBI has asked banks to accelerate provisioning of stressed assets 
• This provisioning measure has reflected heavily on the profitability of the banks with banks recording huge losses or low profits. 
• RBI has eased the NPA redressal norms.
• RBI revised guidelines on Strategic debt restructuring (SDR).
• Banks can make provisions to the tune of 15% of the loan value. 
• RBI relaxed Joint Lender’s Forum (JLF) by bringing down the divestment limit to 26% from 51%.
• RBI has released corrective action plan (CAP) on defaulters.
• RBI has initiated criminal action on willful defaulters.
• RBI has recognized Common Equity Tier I (CETI) capital for deferred tax assets.
• RBI has unlocked 40000 crore to banks to handle the NPA problem temporarily.
• Public sector banks will get an infusion of 35000 crore from RBI.
• Private sector banks will get an infusion of 5000 crore from RBI.
• SARFAESI Act amended to handle NPA related cases in State High court and Supreme court.
• The recent demonetization drive could help banks in recovering some of the NPA arrears.