Non-Performing Assets in the Indian Banking Industry: Evolution, Policy Narratives, and a Way Forward

Abstract

This paper presents the evolution of non-performing assets (NPAs) in the Indian banking industry over the period from 1998/99–2016/17. Alongside, the trends in non-performing assets across ownership types and among sectoral groups are examined. Further, a comprehensive discussion on a series of policy reforms that have been adopted by the policymakers to resolve the problem of NPAs is made. The trend analysis highlights that the gross NPAs and net NPAs as a percentage of gross advances declined sharply during the pre-crisis and crisis-era. However, they substantially increased during the post-crisis years. Among bank groups, the deterioration in asset quality was more pronounced in public sector banks compared to private and foreign peers, especially in the aftermath of the global financial turmoil. Higher spurt in defaults among PSBs was primarily due to a persistent rise in the NPAs from the non-priority sectors relative to priority sectors from 2011/12 to 2016/17. Various resolution strategies are launched for smootheningthebanks’ assetsposition, and we believe that bankswillgearup to control NPAs levelsinthefuture years.