The Roller Coaster Ride of Non-performing Assets in Indian Banking

Rakesh Mohan and Partha Ray provide a sweeping account of NPA crisis in India’s baking system:

This paper narrates the story of the roller coaster ride of non-performing assets (NPA) of the Indian banking sector. Three distinct phases of intertemporal broad trends can be discerned in NPAs of the Indian banking sector. First, since the initiation of financial sector reforms till about the beginning of the North Atlantic Financial Crisis (NAFC), NPAs showed a consistent downward trajectory. Second, during 2008-09 through to 2017-18, they showed a distinct spurt. Third, since 2017-18, NPAs have been on a downward trend till 2019-20, until the economic disruptions caused by Covid 19. In contrast to the popular practice of treating the second phase of rising NPAs as emanating exclusively from governance issues in public sector banks (PSBs), four factors have been identified: (a) falling commodity prices; (b) regulatory forbearance; (c) initial exuberance in infrastructure projects punctured by a downward phase in business cycles (leading to substantial debt accumulation of select big corporates); and (d) governance failure in select PSBs. Moving forward, while the pandemic and some of the associated policy measures could reverse the recent downward trends in NPAs temporarily, more durable policy initiatives like bankruptcy reforms are expected to make significant positive changes in the NPA situation of Indian banks.

One Response to “The Roller Coaster Ride of Non-performing Assets in Indian Banking”

  1. The Roller Coaster Ride of Non-performing Assets in Indian Banking - Daily News DOT Says:

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