When a bank offers a loan, it charges interest on the amount, which is why it is regarded as an asset to the bank. When the borrower stops paying the interest, or the principal, or both, the lender loses money. Such a loan then becomes a non-performing asset (NPA) for the bank. The banking industry in India is seriously affected by the NPA crisis with the rising number of defaulters.
As per the Reserve Bank of India (RBI), a loan is considered a “bad loan”, or an NPA when the interest due for any quarter is not fully paid within 90 days from the end of the quarter. However, this time period may vary based on the terms and conditions agreed upon by the bank and the borrower.
A commonly accepted definition of NPA is: “An asset, including a leased asset, becomes nonperforming when it ceases to generate income for the bank.”
The combination of the above factors, along with regulatory control, made it difficult for companies to repay the loans. Some of the other factors that made the NPA crisis even worse are:
Although it has risen disproportionately in contemporary times, NPA is not a new problem. Over the years, there have been several reform measures undertaken by the government at various levels to bring it down. Some of the important ones are:
The need of the hour is to understand the criticality of the NPA crisis; and take appropriate remedial action. These actions should include:
As a banking aspirant, you should be well versed in all the initiatives undertaken to tackle the NPA crisis in India. Especially important is the Mission Indradhanush, which was launched in 2015. It follows the ABCDEFG methodology to revamp the public sector banks and improve their overall performance. It can be asked as a standalone topic in the essay writing. Hence, you must prepare it in detail.
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