The Ghost of NPAs

Abstract

Abstract Balance sheets as per norms have to reveal the true positions of the business. Question is do balance sheets of banks do this? Unfortunately they do not. Accounts are shown in assets side but they are not so and are classified as non-performing so what made them to non-perform and what are its effects. The move on the part of the government to inject capital of Rs 2.11 lakh crore into public sector banks (PSBs) gives strength to the above fact. Why this has to be done and is this enough is the question. In making this move, there was an implied acceptance that the recovery process set up through the Insolvency and Bankruptcy Code (IBC) reform had not been working at the desired pace. When the Reserve Bank of India (RBI) asked PSBs to work on the recovery process for 12 large exposures which account for 50% of the total non-performing assets (NPAs) worth Rs 8 lakh crore in the banking system, it was expected that by December 2017, the banks would recover about Rs 2 lakh crore. But it’s already November and we know that recovery is eluding us and the process may take longer. Till then the banking system will starve for capital. According to RBI October to December report, the gross NPAs of PSBs are just under Rs 4 lakh crore, and they collectively account for 90% of such rotten apples in the country’s banking portfolio. In terms of net NPAs, their share is even higher—at 92% of the total bad loans reported so far in the banking system (1 crore=10million rupees).