Banking NPAs

Will higher provisions continue to threaten banking profitability?

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Non-performing assets (NPAs) or loans that are not being paid back by the borrowers have consistently been a cause of concern for the Indian banking industry over the last few years. Soaring NPAs are not only curtailing banks’ growth and lending operations, but also causing slowdown in the economy. Sensing the problem, the Reserve Bank of India (RBI) has increased surveillance in 2014 to detect concealed bad loans. As a part of surveillance, the central bank asked banks to report all loan accounts where interest is not being paid in time. After analyzing data for three to four quarters, the central bank realized how bad the asset quality problem is. The RBI then asked banks to recognize large loan accounts where interest is delayed routinely as NPAs.

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