Five Ways New NPA Rule Empowers Banks

Faster resolution, liquidation powers lend banks more teeth to curb the NPA menace

The Reserve Bank of India (RBI) recently announced an ordinance to tackle non-performing assets (NPAs) plaguing Indian banks.

In February, media reports estimated total NPAs of state-owned banks at Rs. 614,872 crore—or approximately $95 billion — for the year ended December 2016. This number was expected to have risen in the aftermath of the demonetisation, with small & medium enterprises (SMEs) struggling to carry on business. NPAs had already shot up by 135% over the previous two years, despite the RBI taking a host of steps to control them. “If you include Rs 400,000 crore worth of write-offs since 2000, then I will say that Rs 10 lakh crore ($155 billion) is the real NPA,” said the RBI’s former deputy governor K C Chakrabarty.

The ordinance’s arrival is viewed positively by the banking sector. It is hoped that it would provide bankers teeth to go after defaulters, liquidate their assets to recover loans and not worry about being persecuted by the investigative agencies.